American Axle & Manufacturing Holdings Inc – ‘SP 15D2’ for 12/31/98

As of:  Monday, 4/19/99   ·   For:  12/31/98   ·   Accession #:  889812-99-1251   ·   File #:  1-14303

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Special Financial Report   —   Rule 15d-2
Filing Table of Contents

Document/Exhibit                   Description                      Pages   Size 

 1: SP 15D2     Special Financial Report                              35    200K 
 2: EX-12       Statement of Computation                               1      6K 
 3: EX-27       Financial Data Schedule                                1      7K 

SP 15D2   —   Special Financial Report
Document Table of Contents

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SECURITIES AND EXCHANGE COMMISSION  
WASHINGTON, D.C. 20549  
FORM 10-K   

(Mark One)                                                                      

/ / Annual report pursuant to section 13 or 15(d) of the Securities Exchange Act
of 1934 for the fiscal year ended December 31, 1998 or                  

/ / Transition report pursuant to section 13 or 15(d) of the Securities Exchange
Act of 1934 for the transition period from                to            

This report on Form 10-K is made as a Special Financial Report pursuant to      
Rule 15d-2 under the Securities Exchange Act of 1934 and contains only Item 7,  
"Management's Discussion and Analysis of Financial Condition and Results of     
Operations", and Item 8, "Financial Statements and Supplementary Data", at      
December 31, 1998 and December 31, 1997 and for the three years in the period   
ended December 31, 1998.                                                        

Commission file number  _____________________________________________ 

AMERICAN AXLE & MANUFACTURING HOLDINGS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

                                                        [Enlarge/Download Table]
                                                                                      
                    DELAWARE                                   38-3161171             
(State or other jurisdiction of incorporation or  (I.R.S. Employer Identification No.)
                 organization)                                                        

              1840 HOLBROOK AVENUE                      DETROIT, MICHIGAN 48212       
    (Address of principal executive offices)                   (Zip Code)             


313-974-2000  
(Registrant's telephone number, including area code)  

SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:   

                                                                [Download Table]
                                                                                   
COMMON STOCK, PAR VALUE $.01 PER SHARE            NEW YORK STOCK EXCHANGE          
        (Title of each class)           (Name of each exchange on which registered)

SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:                     

NONE                                      

                              ______________________
                              (TITLE OF CLASS)

                              ______________________
                              (TITLE OF CLASS)

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was     
required to file such reports), and (2) has been subject to such filing         
requirements for the past 90 days. Yes /x/     No / /                           

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405  
of Regulation S-K is not contained herein, and will not be contained, to the    
best of registrant's knowledge, in definitive proxy or information statements   
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. /x/                                                                  

The aggregate market value of the voting stock of the registrant held by        
stockholders (not including voting stock held by directors and executive        
officers of the registrant) on March 31, 1999 was approximately $84 million. As 
of March 31, 1999, the registrant had 39,465,097 shares of voting common stock  
outstanding.                                                                    

Documents incorporated by reference: None                                       

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American Axle & Manufacturing Holdings, Inc.                                    
Special Financial Report on Form 10-K                                           
Year Ended December 31, 1998                                                    

                                                        [Enlarge/Download Table]

  INDEX                                                                                         
---------                                                                                       
                                                                                                
 Item  7   Management's Discussion and Analysis of Financial Condition and Results of Operations
 Item  8   Financial Statements and Supplementary Data                                          
 Item 14   Exhibits and Financial Statement Schedules                                           



SCHEDULE                                                                                        
 NUMBER                                                                                         
---------                                                                                       
                                                                                                
   II.     Valuation and Qualifying Accounts                                                    



 EXHIBIT                                                                                        
 NUMBER                                                                                         
---------                                                                                       
                                                                                                
   12      Statement of Computation of Ratio of Earnings to Fixed Charges                       
   27      Financial Data Schedule (For SEC use only)                                           

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MANAGEMENT'S DISCUSSION AND ANALYSIS OF 
FINANCIAL CONDITION AND RESULTS OF OPERATIONS 

This discussion and analysis presents the factors that had a material 
effect on our results of operations and cash flows during the three years ended 
December 31, 1998, and our financial position at December 31, 1998 and          
December 31, 1997. This discussion and analysis should be read in conjunction   
with the Consolidated Financial Statements and notes thereto appearing elsewhere
in this Special Financial Report. As used in this Special Financial Report,     
unless the context otherwise requires, references to "we", "us" or "American    
Axle" shall mean collectively (i) American Axle & Manufacturing Inc. ("AAM      
Inc."), a Delaware corporation, and its predecessor and direct and indirect     
subsidiaries and (ii) American Axle & Manufacturing Holdings, Inc. and its      
predecessor ("Holdings"), a Delaware corporation and the direct parent          
corporation of AAM, Inc.                                                        

COMPANY OVERVIEW                                                                

   We are a Tier I supplier to the automotive industry and a world leader in
the design, engineering and manufacturing of driveline systems for light trucks 
and sport utility vehicles ("SUVs"). The driveline system includes all of the   
components that transfer power from the transmission and deliver it to the drive
wheels. The driveline products produced by us include axles, propeller shafts,  
chassis components and forged products. We are General Motors Corporation's     
("GM") principal supplier of driveline components for light trucks, SUVs and    
rear-wheel drive ("RWD") passenger cars. Sales to GM were approximately 93%, 96%
and 96% of our net sales in 1998, 1997 and 1996, respectively.                  

In March 1994, we purchased the assets of the Final Drive and Forge   
Business Unit of the Saginaw Division of GM. In connection with our acquisition 
of the Business Unit, we entered into the Component Supply Agreement (the "CSA")
with GM under which we became the sole-source supplier to GM of all the products
and components previously supplied to GM by the Business Unit. In October 1997, 
we entered into a Recapitalization Agreement pursuant to which Blackstone       
Capital Partners II Merchant Banking Fund LP and certain of its affiliates      
(collectively "Blackstone") acquired control of us. On September 17, 1997 AAM   
Acquisition, Inc., an entity organized by Blackstone, Jupiter, Mr. Dauch, Mr.   
Harris and AAM, Inc., then the parent of Holdings, entered into an agreement    
(the "Recapitalization Agreement") pursuant to which Blackstone acquired        
control of Holdings on October 29, 1997 (the "Recapitalization"). In            
connection with the Recapitalization, we entered into an additional binding     
agreement with GM, the Amended and Restated Memorandum of Understanding (the    
"MOU"). Under the MOU, we have agreed with GM to commit to transition the CSA   
into a number of separate Lifetime Program Contracts ("LPCs") applicable for the
life of each GM vehicle program covered by an LPC. These LPCs will ultimately   
replace the CSA. LPCs have been entered into for substantially all GM vehicle   
programs supplied by us, including the GMT-800 and the M-SUV Programs.          

  In order to induce GM to enter into the MOU and commit to enter into the
LPCs, in 1997, we agreed to temporary reductions of certain payments previously 
agreed to be made by GM to us as part of the commercial arrangements between us,
including certain payments pursuant to the CSA. Such reductions amounted to     
approximately $11.4 million in 1997 and approximately $51.5 million in 1998.    
Such reductions terminated at December 31, 1998.                                

 We sell most of our products under long-term contracts at fixed prices,
some of which are subject to annual price reductions in subsequent years, and   
all of which are subject to negotiated price increases for engineering changes. 
With respect to GM, pricing has been established for products sold under the CSA
and the LPCs; however, we must remain competitive with respect to technology,   
design and quality. We currently purchase through GM's purchasing network       
certain materials for use in the manufacture of products sold under the CSA and 
the LPCs. Under the CSA and currently under the LPCs, we pay current market     
prices for certain materials used in the manufacture of products sold to GM, but
increases or decreases in such prices from levels established under the CSA or  
LPCs currently result in corresponding increases or decreases in the aggregate  
amount paid to us by GM for our products, thereby protecting us from increases  
in the costs of such materials while such purchasing arrangement is in effect.  
We have agreed with GM to develop a mutually satisfactory plan to terminate this
purchasing arrangement no later than December 2002. Thus, while the prices at   
which we sell our products under the CSA and the LPCs have been established,    
under the LPCs, upon termination of the purchasing arrangement described above, 
we will no longer have a contractual right to pass on any future increases in   
the cost of such materials. Increases in material costs beyond the established  
prices are the only costs passed on to GM under the CSA and under the LPCs.     
There can be no assurance that we will be able to pass on any increased labor,  
materials or other costs to GM in the future as we have from time to time in the
past pursuant to the above-described terms of the CSA or by certain additional  
payments agreed to as part of the commercial arrangements                       

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between GM and ourselves. LPCs have terms equal to the lives of the relevant    
vehicle programs, which typically run 6 to 12 years. We will have to compete for
future GM business upon the termination of the LPCs.                            

ALBION ACQUISITION                                                              

In October 1998, we completed the acquisition of Albion Automotive    
(Holdings) Limited ("Albion"). Albion manufactures front steerable and rear     
axles, driving heads, crankshafts, chassis components and transmission parts    
used primarily in medium-duty trucks and buses for customers located in the     
United Kingdom and elsewhere in Europe. Albion's sales for the year ended       
December 31, 1998 were approximately $130 million and its major customers       
include Caterpillar (Perkins), LDV, PACCAR (Leyland and DAF), Renault, Rolls-   
Royce, Rover and Volvo. The acquisition has been accounted for under the        
purchase method of accounting, and Albion's results since the acquisition date  
have been included in our consolidated financial results for the year ended     
December 31, 1998.                                                              

GM WORK STOPPAGE                                                                

  The GM work stoppage which occurred in June and July of 1998 resulted in
the shutdown of nearly all of GM's North American production facilities and     
impacted our operations in June and July 1998 and also resulted in related      
start-up inefficiencies in our operations in August 1998. We estimate that sales
lost as a result of the GM work stoppage were approximately $188 million and    
operating income was adversely impacted by approximately $71 million.           

INDUSTRY AND COMPETITION                                                        

   Our operations are cyclical because they are directly related to domestic
automotive production, which is itself cyclical and dependent on general        
economic conditions and other factors. The axle and related driveline systems   
segment of the automotive industry is highly competitive. The current trend in  
the automotive industry is for original equipment manufacturers "(OEMs)" to     
shift research and development ("R&D"), design and testing responsibility to    
suppliers to take advantage of certain efficiencies. The OEMs have also been    
reducing the number of their suppliers, preferring stronger relationships with  
fewer suppliers. As a result, the Tier I supplier market has been undergoing    
consolidation over the past three to four years. This trend is expected to      
continue, leaving the industry with only a small number of dominant, worldwide  
suppliers.                                                                      

RESULTS OF OPERATIONS                                                           

The following table sets forth certain statement of operations data   
expressed as a percentage of net sales:                                         

                                                        [Enlarge/Download Table]

                                                                            YEAR ENDED DECEMBER 31,    
                                                                         ----------------------------- 
Statement of income data:                                                1996        1997        1998  
                                                                         -----       -----       ----- 
                                                                                                       
  Net sales............................................................. 100.0%      100.0%      100.0%
  Cost of goods sold....................................................  91.3        89.8        92.3 
                                                                         -----       -----       ----- 
  Gross profit..........................................................   8.7        10.2         7.7 
  Selling, general and administrative expenses..........................   4.1         4.8         5.2 
                                                                         -----       -----       ----- 
  Operating income......................................................   4.6         5.4         2.5 
  Other (expense) income................................................    .3        (1.0)       (2.2)
                                                                         -----       -----       ----- 
  Income before income taxes............................................   4.9         4.4          .3 
  Income tax expense....................................................   1.8         1.8          .1 
                                                                         -----       -----       ----- 
  Net income............................................................   3.1%        2.6%         .2%
                                                                         -----       -----       ----- 
                                                                         -----       -----       ----- 

RESULTS OF OPERATIONS--YEAR ENDED DECEMBER 31, 1998 COMPARED TO YEAR ENDED      
DECEMBER 31, 1997                                                               

   Net Sales.  Net sales decreased approximately 5% to $2.04 billion for the
year ended December 31, 1998 compared with $2.15 billion for the year ended     
December 31, 1997. This decrease was primarily due to the adverse impact of the 
GM work stoppage which occurred in June and July of 1998 and the impact of the  
$51.5 million temporary payment reductions discussed under "--Company Overview" 
above, partially offset by higher average "Sales-Dollar Content" per vehicle    
(our revenue per vehicle containing our products) and the inclusion of Albion   
sales since the acquisition. We estimate that sales lost as a result of GM work 
stoppages approximated $188 million and $60 million for the years ended December
31, 1998 and 1997, respectively. We estimate that net sales growth would have   
approximated 3% for the year ended December 31, 1998 after excluding the effects
of the temporary payment reductions in 1998 and the effects of the GM work      
stoppages in 1998 and 1997. Average Sales-Dollar Content per vehicle for the    
year ended December 31, 1998 for GM light trucks, SUVs and vans (excluding      
front-wheel                                                                     

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drive mini-vans) increased slightly over average Sales-Dollar Content per       
vehicle for such vehicles for the year ended December 31, 1997 primarily due to:

   o higher average Sales-Dollar Content per vehicle for the GMT-800 Program
versus the GMT-400 Program; and                                   

o revenue increases related to certain cost increases and engineering 
changes that could be passed on to GM.                            

As adjusted for the GM work stoppages, 1998 production volumes were slightly    
below 1997 levels primarily due to the 1998 launch of the GMT-800 Program.      

  Sales to customers other than GM increased 51% to $134.1 million for the
year ended December 31, 1998, versus $88.5 million for the year ended           
December 31, 1997. The increase in sales to customers other than GM is          
principally due to the inclusion of Albion's sales and additional business we   
have obtained. We had sales outside the United States of $421.5 million in 1998 
compared to $421.7 million in 1997. The change in international sales is        
principally due to the inclusion of Albion's sales offset by the unfavorable    
sales impact of the GM work stoppage in 1998.                                   

  Gross Profit.  Gross profit decreased 29% to $156.4 million for the year
ended December 31, 1998 compared with $220.1 million for the year ended December
31, 1997. Gross margin decreased to 7.7% in the year ended December 31, 1998    
compared to 10.2% for the year ended December 31, 1997. The decreases in gross  
profit and gross margin in the year ended December 31, 1998 were due primarily  
to the impact of the 1998 GM work stoppage, which is estimated to have caused   
approximately $71 million of the decrease in gross profit, and the temporary    
payment reductions discussed above, partially offset by increased productivity  
as a result of the prior capital expenditures made to improve manufacturing     
processes, reduce labor intensive operations and achieve other cost             
efficiencies.                                                                   

Selling, General and Administrative Expenses.  Selling, general and   
administrative expenses (including R&D) increased 2% to $106.2 million for the  
year ended December 31, 1998 compared with $104.0 million for the year ended    
December 31, 1997. Selling, general and administrative expenses as a percentage 
of sales increased to 5.2% for the year ended December 31, 1998 compared to 4.8%
for the year ended December 31, 1997. The increase in spending was principally  
due to our increase in personnel to support our growth and continued investments
for information systems as we complete our transition from GM systems. The      
increase as a percent of sales was primarily due to lost sales as a result of   
the 1998 GM work stoppage. R&D expenses were $29.5 million for the year ended   
December 31, 1998 compared to $27.8 million for the year ended December 31,     
1997. The increase in R&D expenses in the year ended December 31, 1998 compared 
to the year ended December 31, 1997 is primarily due to R&D expenses incurred to
support new product programs.                                                   

  Operating Income.  Operating income was $50.2 million for the year ended
December 31, 1998 compared to $116.1 million for the year ended December 31,    
1997. Operating margin decreased to 2.5% for the year ended December 31, 1998   
compared to 5.4% for the year ended December 31, 1997. The decrease in operating
income was primarily due to the impact of the 1998 GM work stoppage which is    
estimated to have caused approximately $71 million of the decrease, the impact  
of the temporary payment reductions and increased selling, general and          
administrative expenses.                                                        

  Net Interest.  Net interest expense was $44.3 million for the year ended
December 31, 1998 compared to net interest expense of $1.8 million for the year 
ended December 31, 1997. The increase in net interest expense was due to the    
borrowings incurred in connection with the Recapitalization.                    

  Income Tax Expense.  There was an income tax expense of $2.1 million for
the year ended December 31, 1998 compared to $38.9 million for the year ended   
December 31, 1997. Our effective income tax rate was 37.0% for the year ended   
December 31, 1998 versus 41.3% for the year ended December 31, 1997.            

Net Income.  There was net income of $3.5 million for the year ended  
December 31, 1998 compared to $55.3 million for the year ended December 31,     
1997, primarily due to the operating results discussed previously and the impact
of additional interest expense in 1998.                                         

RESULTS OF OPERATIONS--YEAR ENDED DECEMBER 31, 1997 COMPARED TO YEAR ENDED      
DECEMBER 31, 1996                                                               

  Net Sales.  Net sales increased 6% to $2.15 billion for 1997 compared to
$2.02 billion for 1996. This increase was primarily due to:                     

     o a slight increase in the volume of our products for GM light trucks, SUVs
and vans (excluding front-wheel drive mini-vans); and             

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    o an estimated 6% increase in the average Sales-Dollar Content per vehicle
for GM light trucks, SUVs and vans (excluding front-wheel drive   
mini-vans) primarily related to changes in product mix and revenue
      increases related to certain cost increases and engineering changes that
could be passed on to GM.                                         

Sales to GM were approximately 96% of our total sales in both 1997 and
1996. Sales to customers other than GM increased approximately 12% to           
approximately $88.5 million in 1997 compared to $78.8 million in 1996. We had   
sales outside the United States of $421.7 million in 1997 compared to           
$360.5 million in 1996. These increases were a result of new business           
initiatives that we implemented.                                                

   Gross Profit.  Gross profit increased approximately 25% to $220.1 million
for 1997 compared to $176.6 million for 1996. Gross margin increased to 10.2%   
for 1997 compared to 8.7% for 1996. These increases were primarily due to       
increased net sales as described above and increased productivity primarily as a
result of the capital expenditures to support manufacturing initiatives, reduce 
labor intensive operations and achieve cost productivity initiatives, as well as
a benefit of approximately $20 million related to a change in assumptions in    
1997 related to pensions and other postretirement benefits other than pensions, 
and a decrease in depreciation resulting from a change in estimated lives,      
partially offset by higher labor costs associated with the February 1997 labor  
negotiations and resulting contracts.                                           

Selling, General and Administrative Expenses.  Selling, general and   
administrative expenses (including R&D) increased approximately 25% to          
$104.0 million for 1997 compared to $83.1 million for 1996. Selling, general and
administrative expenses as a percentage of sales increased to 4.8% for 1997     
compared to 4.1% for 1996. These increases were principally due to our increase 
in personnel to support our growth, investments made for information systems as 
we transition from GM systems, certain stock compensation expenses totaling     
$9.2 million and increases in R&D expenses. R&D expenses increased approximately
19% to $27.8 million for 1997 compared to $23.4 million for 1996. The increases 
in R&D spending were primarily related to our initiative to expand our customer 
and product base through the development of advanced driveline systems including
the support of the M-SUV Program.                                               

Operating Income.  Operating income increased approximately 24% to    
$116.1 million for 1997 compared to $93.5 million for 1996. Operating margins   
increased to 5.4% for 1997 compared to 4.6% for 1996. These increases were      
primarily due to increased volumes and increased productivity, the impact of the
change in assumptions and depreciable lives partially offset by the impact of   
increased selling, general and administrative expenses discussed above.         

   Net Interest.  Net interest expense was $1.8 million for 1997 compared to
net interest income of $9.4 million for 1996. The increase was due to the       
additional borrowings incurred in connection with the Recapitalization. For most
of 1996 and 1997, we had excess cash invested in short-term investments and     
limited outstanding debt.                                                       

   Recapitalization Expenses.  We incurred $15.9 million of expenses in 1997
related to the Recapitalization. These expenses were seller-related expenses    
which included professional advisory fees.                                      

   Income Tax Expense.  Income tax expense increased 6% to $38.9 million for
1997 compared to $36.6 million in 1996. Our effective income tax rate was 41.3% 
for 1997 compared to 37.2% for 1996. The increase in the effective tax rate for 
1997 was primarily due to non-deductible permanent items related to stock       
compensation.                                                                   

     Net Income.  Net income decreased 10% to $55.3 million for 1997 compared to
$61.7 million for 1996 primarily due to the factors described above.            

LIQUIDITY AND CAPITAL RESOURCES                                                 

Management assesses our liquidity in terms of our overall ability to  
mobilize cash to support business needs and to fund growth. We rely primarily   
upon cash flow from operations and borrowings under our Credit Facilities and a 
$153 million receivables purchase facility (the "Receivables Facility") to      
finance operations and capital expenditures.                                    

The Credit Facilities consist of:                                               

  o a Senior Secured Term Loan Facility (the "Tranche A Term Loan Facility")
providing for delayed draw term loans in an aggregate principal amount of $125  
million;                                                                        

 o a Senior Secured Term Loan Facility (the "Tranche B Term Loan Facility"
and, together with the Tranche A Term Loan Facility, the "Term Loan Facility")) 
providing for term loans in an aggregate principal amount of $375 million;      
and                                                                             

o a Senior Secured Revolving Credit Facility (the "Revolving Credit     
Facility") providing for revolving loans and the issuance of letters of credit  
in an aggregate principal and stated amount not to exceed $250 million (of      
which not more than $30 million may be represented by letters of credit).       

See Note 3 to the Consolidated Financial Statements.                            

 The acquisition price for Albion was approximately $42 million in cash,
provided by borrowings under our Revolving Credit Facility, and approximately   
$30 million of assumed debt and capital lease obligations. Approximately $14    
million of consideration may be payable to Albion's former shareholders based   
upon Albion's future financial performance.                                     

 At December 31, 1998, we had a working capital deficit of $68.9 million
versus a deficit of $96.8 million at December 31, 1997. This decrease was a     
result of lower accounts receivable partially offset by increased inventories,  
prepaid expenses principally related to income taxes and lower levels of accrued
compensation and                                                                

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benefits. The decrease in accounts receivable at December 31, 1998 from December
31, 1997 was due to the receipt of payments from GM for rebillable tooling      
charges, premium charges for additional manufacturing capacity and volume and   
raw material rebates.                                                           

    As part of the arrangements with GM, payment terms for products shipped to
GM will steadily lengthen during the three-year period beginning March 1, 1999, 
resulting in an expected increase in accounts receivable balances and           
anticipated increased interest expense related to our funding of working        
capital. We anticipate that this working capital increase will be funded from   
available sources including cash flow from operations and our Credit Facilities.

 At December 31, 1998, $375.0 million of borrowings were outstanding and
$125.0 million was available for future borrowings under the Term Loan Facility 
and $223.0 million was outstanding and $27.0 million was available for future   
borrowings under the Revolving Credit Facility. Additionally at December 31,    
1998, approximately $66 million was available under the variable funding        
certificates of the Receivables Facility, of which $63.0 million was utilized   
and borrowed. These facilities were established in connection with the          
Recapitalization. The $186.3 million increase in long-term debt and capital     
lease obligations at December 31, 1998, as compared to December 31, 1997, was   
principally related to the effects of the GM work stoppage on cash flow from    
operations, capital expenditures, the approximately $42 million of cash used to 
acquire Albion and the assumption of the debt and capital lease obligations of  
Albion.                                                                         

    The weighted average interest rate of our long-term debt outstanding as of
December 31, 1998 was approximately 8.0% and was approximately 8.1% at December 
31, 1997.                                                                       

Capital expenditures were $210.0 million, $282.6 million and          
$162.3 million in 1998, 1997 and 1996, respectively. These investments in       
machinery and equipment were primarily made to support the launch of the GMT-800
Program, to reduce labor-intensive operations, to support additional capacity   
and for cost reduction programs including upgrades in machinery technology and  
quality standards. We estimate that we will invest approximately $360 million in
capital expenditures during 1999.                                               

  We intend to fund our capital expenditures by borrowing under the Credit
Facilities or the Receivables Facility. We believe our lines of credit are      
adequate to support ongoing operational requirements. Beyond that, we believe we
have sufficient financial flexibility to attract long-term funding on acceptable
terms as may be needed to support our growth objectives.                        

On February 3, 1999, Holdings consummated its IPO, the net proceeds of
which totaled approximately $108 million and have been used to reduce           
outstanding borrowings under the Revolving Credit Facility (but not the related 
commitments).                                                                   

On March 5, 1999, American Axle & Manufacturing, Inc., the Company's  
wholly-owned subsidiary, issued $300,000,000 of 9 3/4% Senior Subordinated      
Notes Due 2009 (the "Notes") in a private placement pursuant to Rule 144A and   
Regulation S of the Securities Act of 1933. The net proceeds from the sale of   
the Notes was approximately $289 million after deduction of discounts to the    
initial purchasers and other fees and expenses. The net proceeds have been used 
to repay existing debt under the Revolving Credit Facility and replace financing
provided by the Receivables Facility, with the remainder of such net proceeds   
used for general corporate purposes, including financing acquisitions and       
capital expenditures.                                                           

  We also intend to enter into sale/leaseback transactions with respect to
approximately $200 million of our existing machinery and equipment in 1999. On  
March 31, 1999, we announced the closing of one such sale/leaseback transaction 
involving approximately $49 million of machinery and equipment. This            
sale/leaseback transaction was financed under an operating lease that will have 
a negative impact on our operating income and will result in lower depreciation 
and amortization, but will have no material impact on our net income. Additional
sale/leaseback transactions, which together with the March 31, 1999 transaction,
would involve approximately $200 million of machinery and equipment, would be   
structured in a similar manner and would have a similar effect on operating     
income, depreciation and amortization and net income. Additionally, if such     
transactions are consummated they would provide us with additional financial    
flexibility.                                                                    

Also in March 1999, we announced the closing of the refinancing of the
Receivables Facility. This refinancing was accomplished through the             
resyndication of a revolving receivables facility by AAM Receivables Corp., our 
indirect wholly owned subsidiary, under similar terms as the preexisting        
Receivables Facility. In addition, this facility has been expanded from $125    
million to $153 million.                                                        

   On April 1, 1999, we announced the closing of our purchase of two forging
companies, Colfor Manufacturing Inc. ("Colfor") and MSP Industries Corporation  
("MSP"), for an aggregate cash purchase price                                   

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of approximately $223 million. Colfor specializes in precision cold, warm and   
hot forgings and operates three manufacturing facilities in Ohio. Giving effect 
as of January 1, 1998 to Colfor's October 1998 acquisition of Valley Forge,     
Inc., Colfor's pro forma 1998 sales would have been approximately $126 million. 
MSP manufactures precision forged powertrain, driveline, chasis and other       
components using cold and warm forging processes at three manufacturing         
facilities in Michigan. MSP's 1998 sales were $56 million.                      

We are currently in various stages of discussions or negotiations with
additional acquisition candidates. It is possible that an agreement with respect
to an acquisition could be reached in the near future. We do not expect that any
such acquisition, if consummated, would have a material impact on our financial 
condition. We expect that the aggregate purchase price for Colfor, MSP and these
other potential acquisition candidates would be less than the amount of         
permitted acquisitions under the Credit Facilities, which, after giving effect  
to the private placement of the outstanding Notes, would be approximately $400  
million. As of the date of this Special Financial Report, no definitive         
agreement with any such acquisition candidate has been entered into, and there  
can be no assurance that any such acquisition will be successfully negotiated   
or consummated.                                                                 

We may also incur additional indebtedness in the future, including to 
finance future acquisitions, subject to certain limitations contained in the    
instruments governing our indebtedness.                                         

SEASONALITY                                                                     

     Our business is moderately seasonal as our major OEM customers historically
have a two week shutdown of operations in July and approximately a one week     
shutdown in December. In addition, traditionally in the third quarter OEM       
customers have incurred lower production rates as model changes enter           
production. Accordingly, third and fourth quarter results may reflect these     
trends.                                                                         

EFFECTS OF INFLATION                                                            

   Inflation generally affects us by increasing the cost of labor, equipment
and raw materials. We believe that the relatively moderate rate of inflation    
over the past few years has not had a significant impact on our operations as we
offset the increases by realizing improvements in operating efficiency or by    
passing through certain increases in the cost of raw materials to GM under the  
terms of the CSA.                                                               

FINANCIAL INSTRUMENTS MARKET RISK                                               

  Our business and financial results are affected by fluctuations in world
financial markets, including interest rates and currency exchange rates. Our    
hedging policy attempts to manage these risks to an acceptable level based on   
management's judgment of the appropriate trade-off between risk, opportunity and
costs. We hedge our interest rate risks by utilizing swaps and collars. We do   
not currently have significant exposures relating to currency risks and did not 
have any financial instruments to reduce currency risks at December 31, 1998 or 
at December 31, 1997. We do not hold financial instruments for trading or       
speculative purposes.                                                           

The Credit Facilities required us to enter into interest rate hedging 
arrangements with a notional value of $112.5 million. The arrangements entered  
into by us, which terminate in December 2000, require us to pay a floating rate 
of interest based on three-month LIBOR with a cap rate of 6.5% and a floor rate 
of 5.5%.                                                                        

 Interest Rate Risk.  As part of our risk-management program, we perform
sensitivity analyses to assess potential gains and losses in earnings and       
changes in fair value relating to hypothetical movements in interest rates. A   
100 basis-point increase in interest rates (approximately 12.5% of our weighted 
average interest rate) affecting our debt obligations, related interest rate    
swaps and collars (based on balances existing at December 31, 1998), would      
impact our 1998 pretax earnings by approximately $5.9 million. See Note 5 to the
Consolidated Financial Statements.                                              

 Currency Risk.  We do not currently have material exposures to currency
exchange-rate risk as most of our business is denominated in U.S. dollars.      
Future business operations and opportunities, including the construction of a   
new manufacturing facility in Guanajuato, Mexico and our recently acquired      
Albion operations in Europe, may expose us to the risk that the eventual net    
dollar cash inflows resulting from these activities may be adversely affected by
changes in currency exchange rates. We intend to manage these risks by utilizing
various types of foreign exchange contracts where appropriate.                  

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YEAR 2000 COMPLIANCE                                                            

   We have implemented a program to identify Year 2000 compliance issues and
develop detailed project plans so that our computer information systems will be 
able to interpret the calendar year term "2000". Systems that process           
transactions based on storing two digits for the year rather than the full four 
digits may encounter significant process inaccuracies and even inoperability in 
attempting to process Year 2000 transactions.                                   

The Year 2000 compliance program implemented by us addresses all plant
equipment, computer hardware and software, and business support equipment. The  
Year 2000 compliance program also includes modifications and conversions        
necessary to address our systems and process interfaces with third-party        
suppliers and customers. To date, we have named a Year 2000 compliance program  
team leader, established a project team covering all locations worldwide,       
completed our assessment of all systems which we believe could be significantly 
affected by the Year 2000 issue, defined plans for remediation and issued       
communications to all our departments regarding Year 2000 issues and strategies.
Management presently believes that, with planned modifications to existing      
systems and processes scheduled to be completed in September 1999, Year 2000    
compliance will not pose significant operational problems.                      

 Our design, engineering, manufacturing and administrative functions are
reliant upon a variety of third parties who could also be affected by the Year  
2000 issue. As a part of our Year 2000 compliance program, we have initiated    
communications with key suppliers, customers and other such third parties to    
evaluate their Year 2000 readiness and to determine whether a Year 2000-related 
event could impede the ability of such suppliers, customers or other third      
parties to interact with and support our operations effectively. Issues         
identified as a result of these communications have been addressed in our Year  
2000 compliance program remediation and contingency planning actions.           

Costs incurred by us to address Year 2000 compliance include the      
acquisition of computer hardware and software to replace existing Year 2000     
non-compliant systems. These costs have been capitalized and amortized over the 
assets' estimated useful lives. There are no significant systems replacement    
initiatives that have been accelerated as a result of our Year 2000 compliance  
assessments.                                                                    

  Costs associated with modifying existing Year 2000 non-compliant systems
are expensed as incurred. The amounts expensed to date have been immaterial and 
we do not expect amounts required to be expensed in the future to have a        
material effect on our financial position or results of operations.             

 If the modifications and conversions planned by us to address Year 2000
compliance are not completed on a timely basis, or if our key suppliers,        
customers or other third parties have significant unresolved systems problems,  
there is a risk that Year 2000 compliance could have a material impact on our   
operations. Potential sources of risk include:                                  

         o the inability of key suppliers (or their suppliers) to be Year 2000
            ready, which could result in delays in product or service deliveries
from such suppliers;                                    

          o the inability of key customers (or their other suppliers) to be Year
          2000 ready, which could result in the cancellation or postponement
of orders from such customers;                          

         o systems incompatabilities with key suppliers or customers resulting
from software conversions or other modifications; and   

         o our inability to modify or replace systems on a timely basis, which
           could result in manufacturing process delays that interrupt product
shipments.                                              

We are presently developing contingency plans for all significant     
components of our computer information systems, including all plant equipment   
and business support equipment, and expects to complete such contingency        
arrangements by June 1999. These contingency plans involve, among other things, 
manual work-arounds, alternative sourcing strategies and flexible staffing      
arrangements.                                                                   

LITIGATION AND ENVIRONMENTAL REGULATIONS                                        

  We are involved in various legal proceedings incidental to our business.
Although the outcome of these matters can not be predicted with certainty,      
management believes that none of these matters, individually or in the          
aggregate, will have a material adverse effect on the financial condition,      
results of operations or cash flows.                                            

GM has agreed to indemnify and hold harmless AAM, Inc. from certain   
environmental issues identified as potential areas of environmental concern at  
the time of the 1994 Acquisition. GM has also agreed to indemnify AAM, Inc.,    
under certain circumstances, for up to ten years from the date of closing of the
1994 Acquisition with respect to certain pre-closing environmental conditions.  

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  Approximately one-acre of a parking lot at our Buffalo facility has been
designated by the New York Department of Environmental Conservation ("NYDEC") as
a Class 3 Inactive Hazardous Waste Disposal Site due to the presence of         
polychlorinated byphenyls in subsurface soil and groundwater below existing     
pavement, and an elevated level of lead in the soil. A Class 3 designation is   
given to a site which does not present a significant threat to the public health
or environment and at which action may be deferred. The area is the subject of  
an Order of Consent between GM and NYDEC effective February 2, 1995. Remediation
required thereunder is being performed by GM in the ordinary course of business.
In addition, GM is conducting remediation at our Tonawanda facility as a result 
of the presence of polychlorinated biphenyls in the soil. The contamination of  
both sites took place prior to our acquiring the properties and is the          
responsibility of GM.                                                           

Based on our assessment of costs associated with our environmental    
responsibilities, including recurring administrative costs, capital expenditures
and other compliance costs, such costs have not had, and in management's        
opinion, will not have in the foreseeable future, a material effect on our      
financial condition, results of operations, cash flows or competitive position. 

EFFECT OF NEW ACCOUNTING STANDARDS                                              

    SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities
was issued in June 1998. SFAS No. 133 establishes standards for the recognition 
and measurement of derivatives and hedging activities. This statement is        
effective for fiscal years beginning after June 15, 1999. We are currently      
analyzing the impact SFAS No. 133 will have on our financial statements.        

  Statement of Position ("SOP") 98-1, Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use, was issued in March 1998. SOP  
98-1, among other things, requires that certain costs of internal use software, 
whether purchased or developed internally, be capitalized and amortized over the
estimated useful life of the software. Adoption of SOP 98-1 is required as of   
January 1, 1999. We have historically followed the guidelines specified in SOP  
98-1.                                                                           

SOP 98-5, Reporting on the Costs of Start-Up Activities, was issued in
April, 1998. SOP 98-5 establishes standards for the financial reporting of      
start-up costs and organization costs and requires such costs to be expensed as 
incurred. SOP 98-5 is effective for fiscal years beginning after December 15,   
1998. We do not expect the adoption of SOP 98-5 to have a material effect on our
financial condition or results of operations.                                   

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ITEM 8  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA                             

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

                                                        [Enlarge/Download Table]
                                                                                                               
Consolidated Financial Statements:                                                                             
  Independent Auditors' Reports....................................................................... F-2, F-3
  Consolidated Balance Sheets at December 31, 1998 and 1997...........................................      F-4
  Consolidated Statements of Income for the years ended December 31, 1998, 1997 and 1996..............      F-5
  Consolidated Statements of Cash Flows for the years ended December 31, 1998, 1997                            
     and 1996.........................................................................................      F-6
  Consolidated Statements of Stockholders' Equity for the years ended December 31, 1998, 1997                  
     and 1996.........................................................................................      F-7
  Notes to Consolidated Financial Statements..........................................................      F-8

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INDEPENDENT AUDITORS' REPORT

To the Board of Directors and Stockholders of                                   
American Axle & Manufacturing Holdings, Inc.                                    

We have audited the accompanying consolidated balance sheet of American Axle &  
Manufacturing Holdings, Inc. and its subsidiaries (the "Company") as of         
December 31, 1998, and the related consolidated statements of income,           
stockholders' equity, and cash flows for the year then ended. Our audit also    
included the financial statement schedule (as of and for the year ended         
December 31, 1998) listed in the index at Item 14. These financial statements   
and the financial statement schedule are the responsibility of the Company's    
management. Our responsibility is to express an opinion on these consolidated   
financial statements and the financial statement schedule based on our audit.   

We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable 
assurance about whether the consolidated financial statements are free of       
material misstatement. An audit includes examining, on a test basis, evidence   
supporting the amounts and disclosures in the consolidated financial statements.
An audit also includes assessing the accounting principles used and significant 
estimates made by management, as well as evaluating the overall financial       
statement presentation. We believe that our audit provides a reasonable basis   
for our opinion.                                                                

In our opinion, such 1998 consolidated financial statements present fairly, in  
all material respects, the financial position of the Company at December 31,    
1998 and the results of their operations and their cash flows for the year then 
ended in conformity with generally accepted accounting principles. Also, in our 
opinion, such financial statement schedule (as of and for the year ended        
December 31, 1998) when considered in relation to the basic financial statements
taken as a whole presents fairly in all material respects the information set   
forth therein.                                                                  

/s/ Deloitte & Touche LLP                                                       
Detroit, Michigan                                                               
February 5, 1999                                                                

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REPORT OF INDEPENDENT AUDITORS

Board of Directors                                                              
American Axle & Manufacturing of Michigan, Inc.                                 

We have audited the accompanying consolidated balance sheet of American Axle &  
Manufacturing of Michigan, Inc. and subsidiaries as of December 31, 1997, and   
the related consolidated statements of income, stockholders' equity, and cash   
flows for each of the two years in the period ended December 31, 1997. Our audit
also included the financial statement schedule (as of and for the years ended   
December 31, 1997 and 1996) listed in Item 14. These financial statements and   
schedule are the responsibility of the Company's management. Our responsibility 
is to express an opinion on these financial statements and schedule based on our
audits.                                                                         

We conducted our audits in accordance with generally accepted auditing          
standards. Those standards require that we plan and perform the audit to obtain 
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting 
the amounts and disclosures in the financial statements. An audit also includes 
assessing the accounting principles used and significant estimates made by      
management, as well as evaluating the overall financial statement presentation. 
We believe that our audits provide a reasonable basis for our opinion.          

In our opinion, the consolidated financial statements referred to above present 
fairly, in all material respects, the consolidated financial position of        
American Axle & Manufacturing of Michigan, Inc. and subsidiaries at December 31,
1997, and the consolidated results of their operations and their cash flows for 
each of the two years in the period ended December 31, 1997 in conformity with  
generally accepted accounting principles. Also, in our opinion, the related     
financial statement schedule (as of and for the years ended December 31, 1997   
and 1996), when considered in relation to the basic financial statements taken  
as a whole, presents fairly in all material respects, the information set forth 
therein.                                                                        

                         /s/ Ernst & Young LLP

Detroit, Michigan                                                               
May 15, 1998, except as to the Note 16 thereto,                                 
as to which the date is January 22, 1999.                                       

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AMERICAN AXLE & MANUFACTURING HOLDINGS, INC.
CONSOLIDATED BALANCE SHEETS 

                                                        [Enlarge/Download Table]

                                                                                             DECEMBER 31,       
                                                                                       ------------------------ 
                                                                                          1998          1997    
                                                                                       ----------    ---------- 
                                                                                            (IN THOUSANDS)      
                                                                                                                
                                        ASSETS                                                                  
Current assets:                                                                                                 
  Cash and equivalents................................................................ $    4,547    $   17,285 
  Accounts receivable, net of allowance of $2,986 in 1998 and $3,247 in 1997..........    123,787       166,459 
  Inventories.........................................................................    137,066        96,636 
  Prepaid expenses and other..........................................................     14,524         3,184 
  Deferred income taxes...............................................................     14,093         5,608 
                                                                                       ----------    ---------- 
Total current assets..................................................................    294,017       289,172 

Property, plant and equipment, net....................................................    829,301       649,780 
Deferred income taxes.................................................................     62,194        53,959 
Other assets and deferred charges.....................................................     40,720        24,742 
                                                                                       ----------    ---------- 
Total assets.......................................................................... $1,226,232    $1,017,653 
                                                                                       ----------    ---------- 
                                                                                       ----------    ---------- 
                         LIABILITIES AND STOCKHOLDERS' EQUITY                                                   
Current liabilities:                                                                                            
  Accounts payable.................................................................... $  232,781    $  227,826 
  Accrued compensation and benefits...................................................    105,355       135,513 
  Other accrued expenses..............................................................     24,750        22,659 
                                                                                       ----------    ---------- 
Total current liabilities.............................................................    362,886       385,998 

Long-term debt and capital lease obligations..........................................    693,368       507,043 
Postretirement benefits and other long-term liabilities...............................    129,510        87,381 
                                                                                       ----------    ---------- 
Total liabilities.....................................................................  1,185,764       980,422 
Stockholders' equity:                                                                                           
  Common stock, par value $.01 a share;                                                                         
     shares authorized--150,000,000;                                                                            
     shares issued--32,456,107 in 1998 and 32,385,097 in 1997.........................          1             1 
  Paid-in capital.....................................................................     92,527        92,225 
  Accumulated deficit.................................................................    (51,467)      (54,995)
  Cumulative translation adjustment...................................................       (593)           -- 
                                                                                       ----------    ---------- 
Total stockholders' equity............................................................     40,468        37,231 
                                                                                       ----------    ---------- 
Total liabilities and stockholders' equity............................................ $1,226,232    $1,017,653 
                                                                                       ----------    ---------- 
                                                                                       ----------    ---------- 

See accompanying notes to consolidated financial statements.

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AMERICAN AXLE & MANUFACTURING HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF INCOME 

                                                        [Enlarge/Download Table]

                                                                                YEARS ENDED DECEMBER 31,        
                                                                         -------------------------------------- 
                                                                            1998          1997          1996    
                                                                         ----------    ----------    ---------- 
                                                                         (IN THOUSANDS, EXCEPT PER SHARE DATA)  

                                                                                                                
Net sales............................................................... $2,040,578    $2,147,451    $2,022,272 

Cost of goods sold......................................................  1,884,197     1,927,364     1,845,722 
                                                                         ----------    ----------    ---------- 

Gross profit............................................................    156,381       220,087       176,550 

Selling, general and administrative expenses............................    106,191       103,954        83,072 
                                                                         ----------    ----------    ---------- 

Operating income........................................................     50,190       116,133        93,478 

Net interest (expense) income...........................................    (44,337)       (1,846)        9,412 

Recapitalization expenses...............................................         --       (15,929)           -- 

Other (expense), net....................................................       (251)       (4,161)       (4,566)
                                                                         ----------    ----------    ---------- 

Income before income taxes..............................................      5,602        94,197        98,324 

Income taxes............................................................      2,074        38,933        36,600 
                                                                         ----------    ----------    ---------- 

Net income..............................................................      3,528        55,264        61,724 

Preferred dividends.....................................................         --       (29,915)      (13,642)

Excess of the carrying amount over the fair value                                                               
  of the consideration transferred to the holders of                                                            
  Class A Preferred Stock...............................................         --        29,814            -- 
                                                                         ----------    ----------    ---------- 

Net income available for common stockholders............................ $    3,528    $   55,163    $   48,082 
                                                                         ----------    ----------    ---------- 
                                                                         ----------    ----------    ---------- 

Basic earnings per share................................................ $      .11    $      .74    $      .58 
                                                                         ----------    ----------    ---------- 
                                                                         ----------    ----------    ---------- 

Diluted earnings per share.............................................. $      .08    $      .43    $      .43 
                                                                         ----------    ----------    ---------- 
                                                                         ----------    ----------    ---------- 

See accompanying notes to consolidated financial statements.

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AMERICAN AXLE & MANUFACTURING HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS 

                                                        [Enlarge/Download Table]

                                                                                 YEARS ENDED DECEMBER 31,       
                                                                            ----------------------------------- 
                                                                              1998         1997         1996    
                                                                            ---------    ---------    --------- 
                                                                                      (IN THOUSANDS)            
                                                                                                                
Operating activities                                                                                            
  Net income............................................................... $   3,528    $  55,264    $  61,724 
  Adjustments to reconcile net income to net cash provided by                                                   
     operating activities:                                                                                      
       Depreciation and amortization.......................................    71,730       50,177       36,076 
       Deferred income taxes...............................................     2,556       (9,651)      (7,549)
       Stock option compensation expense...................................        --        6,870           -- 
       Pensions and other postretirement benefits, net of contributions....    20,073       30,701       22,050 
       Loss on disposal of equipment.......................................       271        4,161        4,566 
       Changes in operating assets and liabilities:                                                             
          Accounts receivable..............................................    59,232      (75,322)       2,529 
          Inventories......................................................   (26,981)      10,803        2,255 
          Accounts payable and accrued expenses............................   (34,841)     141,521      (68,963)
          Long-term liabilities............................................    (1,518)      (9,916)       6,049 
          Other assets and deferred charges................................   (12,697)      (3,778)       6,950 
                                                                            ---------    ---------    --------- 
Net cash provided by operating activities..................................    81,353      200,830       65,687 

Investing activities                                                                                            
  Purchases of property and equipment, net.................................  (209,993)    (282,625)    (162,317)
  Acquisition, net of cash acquired........................................   (41,498)          --           -- 
  Proceeds from sale-leaseback of equipment................................        --           --       31,085 
                                                                            ---------    ---------    --------- 
Net cash used in investing activities......................................  (251,491)    (282,625)    (131,232)

Financing activities                                                                                            
  Borrowings under Revolving Credit and Receivables facilities, net........   156,000      130,000           -- 
  Proceeds from issuance of long-term debt.................................     1,943      375,000        2,420 
  Payments on long-term debt...............................................      (743)        (325)      (1,052)
  Debt issuance costs......................................................      (102)     (18,567)          -- 
  Payment of dividends.....................................................        --      (34,538)     (17,434)
  Recapitalization payments................................................        --     (478,928)          -- 
  Proceeds from issuance of common stock...................................       302          404           -- 
  Payments from stockholder of preferred stock.............................        --           --       37,306 
                                                                            ---------    ---------    --------- 
Net cash provided by (used in) financing activities........................   157,400      (26,954)      21,240 
                                                                            ---------    ---------    --------- 
Net decrease in cash and equivalents.......................................   (12,738)    (108,749)     (44,305)
Cash and equivalents at beginning of year..................................    17,285      126,034      170,339 
                                                                            ---------    ---------    --------- 

Cash and equivalents at end of year........................................ $   4,547    $  17,285    $ 126,034 
                                                                            ---------    ---------    --------- 
                                                                            ---------    ---------    --------- 

See accompanying notes to consolidated financial statements.

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AMERICAN AXLE & MANUFACTURING HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY 

                                                        [Enlarge/Download Table]

                                                                               RECEIVABLE                              
                                                                 RETAINED         FROM                                 
                                                                 EARNINGS      STOCKHOLDER   CUMULATIVE                
                                             COMMON  PAID-IN    (ACCUMULATED   OF PREFERRED  TRANSLATION  COMPREHENSIVE
                                             STOCK   CAPITAL     DEFICIT)        STOCK       ADJUSTMENT     INCOME     
                                             ------  --------   ------------   ------------  ----------   -------------
                                                                           (IN THOUSANDS)                              

                                                                                                                       
Balance at January 1, 1996.................. $   1   $ 94,499     $115,672       $(41,600)     $    0                  
Net income and comprehensive income.........                        61,724                                   $61,724   
                                                                                                             -------   
                                                                                                             -------   
Cash dividends:                                                                                                        
  Preferred stock--$1,023 per share.........                       (13,642)                                            
  Common stock--$.0456 per share............                        (3,792)                                            
Payment received from stockholder of                                                                                   
  preferred stock...........................                                       37,306                              
Discount for prepayment of receivable from                                                                             
  stockholder of preferred stock............           (4,294)                      4,294                              
                                             ------  --------     --------       --------      ------                  

Balance at December 31, 1996................     1     90,205      159,962              0           0                  
Net income and comprehensive income.........                        55,264                                   $55,264   
                                                                                                             -------   
                                                                                                             -------   
Cash dividends:                                                                                                        
  Preferred stock--$2,243 per share.........                       (29,915)                                            
  Common stock--$.0558 per share............                        (4,623)                                            
Recapitalization of common stock............          (12,867)    (203,450)                                            
Recapitalization of preferred stock.........                        29,814                                             
Recapitalization tax payment to Jupiter                                                                                
  Capital Corporation.......................                       (74,200)                                            
Recapitalization costs paid to or on behalf                                                                            
  of stockholders...........................                       (18,225)                                            
Recapitalization deferred taxes.............                        30,378                                             
Issuance of common stock....................              404                                                          
Stock option grants.........................           14,483                                                          
                                             ------  --------     --------       --------      ------                  

Balance at December 31, 1997................     1     92,225      (54,995)             0           0                  
Net income..................................                         3,528                                   $ 3,528   
Issuance of common stock....................              302                                                          
Foreign currency translation................                                                     (593)          (593)  
                                                                                                             -------   
Comprehensive income........................                                                                 $ 2,935   
                                             ------  --------     --------       --------      ------        -------   
                                                                                                             -------   

Balance at December 31, 1998................ $   1   $ 92,527     $(51,467)      $      0      $ (593)                 
                                             ------  --------     --------       --------      ------                  
                                             ------  --------     --------       --------      ------                  

See accompanying notes to consolidated financial statements.

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AMERICAN AXLE & MANUFACTURING HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES                                   

Organization                                                                

American Axle & Manufacturing Holdings, Inc. ("Holdings") and its     
subsidiaries (collectively, the "Company"), is a Tier I supplier to the         
automotive industry and a world leader in the design, engineering and           
manufacturing of driveline systems for light and medium-duty trucks,            
sport-utility vehicles, vans and buses. The driveline system includes all the   
components that transfer power from the transmission and deliver it to the drive
wheels. Driveline products produced by the Company at manufacturing facilities  
in the United States and the United Kingdom include axles, propeller shafts,    
chassis components driving heads, crankshafts, transmission parts and forged    
products. In addition, the Company is in the process of constructing a          
manufacturing facility in Guanajuato, Mexico.                                   

Holdings is the survivor of a migratory merger with American Axle &   
Manufacturing of Michigan, Inc. ("AAMM" or "the predecessor company") and has no
significant assets other than its investment in its subsidiaries. Pursuant to   
this merger, which was effected in January, 1999, each share of the predecessor 
company's common stock was converted into 3,945 shares of Holdings' common      
stock. All share and per share amounts have been adjusted to reflect this       
conversion.                                                                     

     In February, 1999, Holdings completed an initial public offering and issued
7 million shares of its common stock. The net proceeds of the offering, after   
deduction of associated expenses, approximated $108 million.                    

Principles of Consolidation                                                 

    The consolidated financial statements include the accounts of Holdings and
its subsidiaries. All intercompany transactions, balances and profits are       
eliminated upon consolidation.                                                  

Revenue Recognition                                                         

   The Company recognizes revenue when products are shipped to the customer.

Research and Development Costs                                              

   The Company expenses research and development costs as incurred. Research
and development costs were $29.5 million, $27.8 million and $23.4 million for   
1998, 1997 and 1996, respectively.                                              

Cash and Equivalents                                                        

Cash and equivalents include all cash balances and highly liquid      
investments with a maturity of ninety days or less at time of purchase.         

Tooling                                                                     

    Costs incurred by the Company for tooling for which customer reimbursement
is anticipated are classified as accounts receivable in the accompanying        
consolidated balance sheets. Provisions for losses are recorded at the time the 
Company anticipates the costs of these projects to exceed anticipated customer  
reimbursement.                                                                  

Inventories                                                                 

     Inventories in the U.S. are stated at the lower of cost or market under the
last-in, first-out method (LIFO). Inventories in countries other than the U.S.  
are stated at the lower of cost or market under the first-in, first-out method  
(FIFO). Supplies and repair parts inventory consists of materials consumed in   
the manufacturing process but not incorporated into the finished products and   
repair parts used to service machinery and equipment.                           

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AMERICAN AXLE & MANUFACTURING HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) 

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)                      

The components of inventories are as follows:                         

                                                        [Enlarge/Download Table]

                                                                           DECEMBER 31,     
                                                                        ------------------- 
                                                                          1998       1997   
                                                                        --------    ------- 
                                                                          (IN THOUSANDS)    
                                                                                            
Raw materials and work-in-process...................................... $ 87,540    $68,323 
Finished goods.........................................................   42,233     25,587 
                                                                        --------    ------- 
Gross inventories at average cost......................................  129,773     93,910 
Excess of average cost over LIFO cost..................................   (7,030)    (7,650)
                                                                        --------    ------- 
Net inventories........................................................  122,743     86,260 
Supplies and repair parts..............................................   14,323     10,376 
                                                                        --------    ------- 
                                                                        $137,066    $96,636 
                                                                        --------    ------- 
                                                                        --------    ------- 

Property, Plant and Equipment                                               

Property, plant and equipment consists of the following:              

                                                        [Enlarge/Download Table]

                                                                          DECEMBER 31,      
                                                                     ---------------------- 
                                                                        1998         1997   
                                                                     ----------    -------- 
                                                                         (IN THOUSANDS)     
                                                                                            
Land and land improvements.......................................... $   19,308    $ 15,757 
Buildings and building improvements.................................     51,434      40,426 
Machinery and equipment.............................................    843,419     506,927 
Construction in progress............................................    133,080     205,773 
                                                                     ----------    -------- 
                                                                      1,047,241     768,883 
Accumulated depreciation............................................   (217,940)   (119,103)
                                                                     ----------    -------- 
Property, plant and equipment, net.................................. $  829,301    $649,780 
                                                                     ----------    -------- 
                                                                     ----------    -------- 

    Property, plant and equipment are stated at cost. Construction in progress
includes costs incurred for machinery and equipment and building improvements in
process. Depreciation is provided using the straight-line method over the       
estimated useful lives of the related assets. Depreciation of property, plant   
and equipment amounted to $67 million, $48 million and $35 million in 1998, 1997
and 1996, respectively.                                                         

The estimated lives of property, plant and equipment are as follows:  

                                                                [Download Table]
                                                                          
Land improvements                                                 15 years
Buildings and building improvements                               40 years
Machinery and equipment                                      3 to 15 years

    Effective January 1, 1997, the Company extended the estimated useful lives
of certain machinery and equipment to better allocate the cost of the assets    
over their estimated useful lives. This change in estimated useful lives        
increased operating income by approximately $6.4 million in 1997. The Company   
analyzed the useful lives of machinery and equipment in conjunction with the    
Agreements discussed in Note 11 together with alternative uses for this         
equipment and determined that machinery and equipment lives could be extended to
15 years in certain circumstances.                                              

   Included in 1997 purchases of machinery and equipment was $9.6 million of
equipment acquired from an affiliate of Jupiter Capital Corporation (the        
predecessor company's parent prior to the recapitalization discussed in Note 2; 
"Jupiter") in an arms-length transaction.                                       

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AMERICAN AXLE & MANUFACTURING HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) 

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)                      

Goodwill and Other Intangible Assets                                        

     Goodwill represents the excess of the cost of purchased businesses over the
fair value of their net assets at the date of acquisition and is amortized on a 
straight-line basis over periods not exceeding 40 years. Other intangible assets
consist of patents, other identified rights and deferred charges and are        
amortized over their estimated useful lives, ranging from one to eight years at 
December 31, 1998.                                                              

Impairment of Long-Lived Assets                                             

The Company periodically reviews the realizability of its long-lived  
assets, including goodwill and other intangible assets, based on an evaluation  
of remaining useful lives, cash flows and profitability projections and has     
determined that there is no impairment at December 31, 1998.                    

Derivatives                                                                 

  Gains and losses on hedges of assets and liabilities are included in the
carrying amounts of those assets or liabilities and ultimately are recognized in
income. The interest rate differential relating to interest rate swaps and      
collars used to hedge debt and lease obligations is reflected as an adjustment  
to interest expense over the lives of the swaps. Cash flows from derivatives are
classified in the same category as the cash flows from the related activity. In 
circumstances where the underlying assets or liabilities are sold or no longer  
exist, any remaining carrying value adjustments are recognized in other income  
or expense. See Note 5.                                                         

     In June, 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133 ("SFAS 133"), Accounting for Derivative  
Instruments and Hedging Activities, effective for all fiscal quarters of fiscal 
years beginning after June 15, 1999. SFAS 133 requires that all derivatives be  
recognized either as assets or liabilities in the statement of financial        
position and be measured at fair value. The Company is currently analyzing the  
impact SFAS 133 will have on its financial statements.                          

Earnings Per Share                                                          

Basic earnings per share are based upon the weighted average number of
shares outstanding during each year. Diluted earnings per share assumes the     
exercise of common stock options when dilutive.                                 

Accounting for Stock Based Compensation                                     

The Company has elected to follow Accounting Principles Board Opinion 
Number 25 (APB No. 25), Accounting for Stock Issued to Employees and related    
interpretations in accounting for its employee stock options. Accordingly,      
compensation cost is measured on the excess, if any, of the market price of the 
company's stock at the date of grant over the amount an employee must pay to    
acquire the stock. The Company has adopted the disclosure-only provisions for   
Statement of Financial Accounting Standards Number 123 (SFAS No. 123),          
Accounting for Stock-Based Compensation, which requires the recording of        
compensation for stock-based compensation at fair value.                        

Comprehensive Income                                                        

  In 1998, the Company adopted Statement of Financial Accounting Standards
No. 130, Reporting Comprehensive Income. Currency translation adjustments are   
the Company's only component of other comprehensive income.                     

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AMERICAN AXLE & MANUFACTURING HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) 

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)                      

Currency Translation                                                        

Assets and liabilities of foreign subsidiaries are translated to U.S. 
dollars at end-of-period exchange rates. The effect of translation for the      
Company's foreign subsidiaries that use the local currency as their functional  
currency is reported in a separate component of stockholders' equity. The effect
of remeasurement of assets and liabilities of the Company's foreign subsidiary  
that uses the U.S. dollar as its functional currency is included in income.     
Income statement elements of all foreign subsidiaries are translated to U.S.    
dollars at average-period exchange rates and are recognized as part of revenues,
costs and expenses. Also included in income are gains and losses arising from   
transactions denominated in a currency other than the functional currency of the
particular subsidiary.                                                          

EFFECT OF NEW ACCOUNTING STANDARDS                                              

  Statement of Position ("SOP") 98-1, Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use, was issued in March, 1998. SOP 
98-1, among other things, requires that certain costs of internal use software, 
whether purchased or developed internally, be capitalized and amortized over the
estimated useful life of the software. Adoption of SOP 98-1 is required as of   
January 1, 1999. The Company has historically followed the guidelines specified 
in SOP 98-1.                                                                    

SOP 98-5, Reporting on the Costs of Start-Up Activities, was issued in
April, 1998. SOP 98-5 establishes standards for the financial reporting of      
start-up costs and organization costs and requires such costs to be expensed as 
incurred. SOP 98-5 is effective for fiscal years beginning after December 15,   
1998. The Company does not expect the adoption of SOP 98-5 to have a material   
effect on its financial condition or results of operations.                     

Use of Estimates                                                            

The preparation of financial statements in conformity with generally  
accepted accounting principles requires management to make estimates and        
assumptions that affect the reported amounts and the disclosures in the         
financial statements. Actual results could differ from those estimates.         

Reclassifications                                                           

   Certain 1996 and 1997 amounts have been reclassified to conform with 1998
presentation.                                                                   

2. RECAPITALIZATION                                                             

   On October 29, 1997, AAMM completed a comprehensive recapitalization (the
"Recapitalization"). Prior to the Recapitalization, AAMM was a wholly-owned     
subsidiary of American Axle & Manufacturing, Inc. ("AAM Inc."). Pursuant to the 
Recapitalization, AAMM acquired a 100% ownership interest in AAM Inc. by        
exchanging shares of its own stock, on a one-for-one basis, with the            
stockholders of AAM Inc. The exchange of shares has been accounted for in a     
manner similar to a pooling of interests since both AAMM and AAM Inc. were under
common control. Following the exchange of shares, AAMM repurchased 50,760,906   
shares or 61% of its common stock outstanding for $216.3 million. Following the 
Recapitalization, the original stockholders of AAM Inc. owned 17.8% of          
outstanding common stock. As part of the Recapitalization, AAMM repurchased all 
outstanding Preferred Stock for $170.2 million. As part of the Recapitalization,
AAMM made a $74.2 million payment to Jupiter related to certain tax payments.   

    As part of the Recapitalization, AAMM redeemed and retired all outstanding
shares of Class A Preferred Stock ("preferred stock") issued in 1994 to General 
Motors Corporation ("General Motors"). In 1997 and 1996, General Motors earned  
$12 million and $17.9 million of dividends, respectively, based on cash flow and
net income formulae. Both the 1997 and 1996 dividends were declared and paid in 
1997.                                                                           

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AMERICAN AXLE & MANUFACTURING HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) 

2. RECAPITALIZATION--(CONTINUED)                                                

    Recapitalization expenses of $15.9 million consisted primarily of fees for
professional services. In addition, other Recapitalization costs of $18.2       
million were paid either to stockholders or to third parties on the             
stockholders' behalf and have been charged directly to retained earnings.       

3. ACQUISITION                                                                  

     In October, 1998, the Company acquired Albion Automotive (Holdings) Limited
("Albion") for a purchase price of approximately $42 million and approximately  
$30 million of assumed debt and capital lease obligations. The excess of the    
purchase price over the fair value of the net assets acquired of $20 million has
been recorded as goodwill and is included in other assets and deferred charges. 
Approximately $14 million of additional purchase price consideration may be     
payable to Albion's former stockholders based upon Albion's future financial    
performance. For the year ended December 31, 1998, Albion sales were            
approximately $130 million. The consolidated statement of income includes the   
operating results of Albion from the acquisition date.                          

4. LONG-TERM DEBT AND LEASE OBLIGATIONS                                         

 Long-term debt and capital lease obligations consists of the following:

                                                        [Enlarge/Download Table]

                                                                           DECEMBER 31,    
                                                                       --------------------
                                                                         1998        1997  
                                                                       --------    --------
                                                                          (IN THOUSANDS)   
                                                                                           
Credit Facilities:                                                                         
  Revolver............................................................ $223,000    $ 55,000
  Tranche A Term Loan.................................................        0           0
  Tranche B Term Loan.................................................  375,000     375,000
                                                                       --------    --------
     Total Credit Facilities..........................................  598,000     430,000
Receivables Facility..................................................   63,000      75,000
Albion Capital Lease Obligations......................................   26,102           0
Other.................................................................    6,266       2,043
                                                                       --------    --------
                                                                       $693,368    $507,043
                                                                       --------    --------
                                                                       --------    --------

   At December 31, 1998, the Revolver and Receivables Facility are supported
by long-term Credit Facilities.                                                 

Credit Facilities                                                           

   The Company's Senior Secured Bank Credit Facilities ("Credit Facilities")
consist of a (i) $250 million Revolving Credit Facility, due October 2004       
("Revolver"), (ii) $125 million delayed draw Term Loan Facility ("Tranche A Term
Loan") due in semi-annual installments of varying amounts through October 2004  
and (iii) $375 million Term Loan Facility ("Tranche B Term Loan") due in        
semi-annual installments of varying amounts through April 2006. The Tranche A   
Term Loan can be drawn until October 1999.                                      

    Amounts outstanding under the Credit Facilities are secured by the capital
stock of the Company's significant subsidiaries and all the assets except for   
those securing the Receivables Facility and permitted equipment and lease       
financings. Borrowings under the Credit Facilities bear interest at rates based 
on The Chase Manhattan Bank ("Chase") alternate base rate or LIBOR, plus, in    
each case, an applicable margin. At December 31, 1998, $125 million was         
available for future borrowings under the Tranche A Term Loan and $27 million   
was available for future borrowings under the Revolver.                         

The Credit Facilities contain various operating covenants which, among
other things, impose certain limitations on the Company's ability to declare or 
pay dividends or distributions on capital stock, redeem or repurchase capital   
stock, incur liens, incur indebtedness, or merge, make acquisitions or sell     
assets. Under the                                                               

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AMERICAN AXLE & MANUFACTURING HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) 

4. LONG-TERM DEBT AND LEASE OBLIGATIONS--(CONTINUED)                            

Credit Facilities, the Company is required to comply with financial covenants   
relating to interest coverage, leverage, retained earnings and capital          
expenditures. Borrowings under the Credit Facilities may be prepaid by the      
Company at any time at the option of the Company, without penalty, other than   
breakage costs. Loans made under the Credit Facilities are subject to mandatory 
prepayments under certain conditions. Additionally, the Credit Facilities       
required the Company to enter into interest rate hedging arrangements with a    
notional value of $112.5 million.                                               

     At December 31, 1998, the weighted average rate of interest on the balances
outstanding under the Credit Facilities was 8.1%.                               

Receivables Facility                                                        

In connection with the Recapitalization, AAM Inc. (the "Seller")      
established a receivables financing facility (the "Receivables Facility")       
through AAM Receivables Corp. ("AAM Receivables"), a wholly-owned,              
bankruptcy-remote subsidiary of the Company. Pursuant to the Receivables        
Facility, the Seller agreed to sell certain customer trade receivables created  
from time to time to AAM Receivables which, in turn, transferred all of such    
receivables to a trust, which issued a variable funding certificate (the "VFC") 
representing an undivided interest in the receivables pool to Chase. Under the  
VFC, Chase provided a revolving financing commitment, subject to the terms and  
conditions of the Receivables Facility, of up to $125 million through October   
2003. These receivables are not available to the Company's general creditors.   
However, the primary customer of the Seller is also a supplier to the Seller    
and, in certain circumstances, may be able to offset amounts payable by the     
Seller against the Seller's trade receivables from the supplier. Accordingly,   
the Receivables Facility has been accounted for as if it were a secured         
borrowing.                                                                      

Availability of financing under the VFC depends on the amount of      
receivables generated by the Seller from its sales, the rate of collection on   
those receivables and certain other characteristics of those receivables that   
affect their eligibility. At December 31, 1998, approximately $66 million was   
available of which $63 million was utilized under the VFC.                      

    The Receivables Facility bears interest, at the Company's option, at rates
based on Chase's alternate base rate or LIBOR plus, in each case, an applicable 
margin. The weighted average rate of interest on the balances outstanding under 
the Receivables Facility at December 31, 1998 was 7.2%.                         

Leases                                                                      

 Albion leases certain facilities, machinery and equipment under capital
leases expiring at various dates. Approximately $32 million of such assets are  
included in property, plant and equipment at December 31, 1998. The weighted    
average rate of interest on these capital lease obligations was 8.5% at         
December 31, 1998.                                                              

     Substantially all of the Company's current maturities of long-term debt and
capital lease obligations at December 31, 1998 relate to Albion's capital       
leases. The Company has sufficient availability to refinance this indebtedness  
through its existing long-term Credit Facilities and, therefore, has classified 
these capital lease obligations as noncurrent liabilities at December 31, 1998. 

The Company leases certain facilities, machinery and equipment under  
operating leases expiring at various dates. All of the leases contain renewal   
and/or purchase options. Total expense for all operating leases was $14.0       
million, $9.7 million and $4.4 million for the years ended December 31, 1998,   
1997 and 1996 respectively.                                                     

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AMERICAN AXLE & MANUFACTURING HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) 

4. LONG-TERM DEBT AND LEASE OBLIGATIONS--(CONTINUED)                            

Future Minimum Debt and Lease Payments                                      

     Future minimum debt and lease payments at December 31, 1998, are as follows
(in thousands):                                                                 

                                                        [Enlarge/Download Table]

                                                                          OPERATING  AGGREGATE DEBT AND
                                                                           LEASES    CAPITAL LEASES    
                                                                          ---------  ------------------
                                                                                                       
1999.....................................................................  $14,008        $  5,759     
2000.....................................................................   14,039           6,969     
2001.....................................................................   14,052           5,770     
2002.....................................................................   38,054           2,875     
2003.....................................................................    1,698           2,234     
Thereafter...............................................................      726         673,187     
                                                                           -------        --------     
Total obligations........................................................  $82,577         696,794     
                                                                           -------                     
                                                                           -------                     
Amounts representing interest............................................                   (3,426)    
                                                                                          --------     
Present value of long-term debt..........................................                 $693,368     
                                                                                          --------     
                                                                                          --------     

   The Company made cash payments of interest of $50.2 million, $1.7 million
and $14,000 in 1998, 1997 and 1996, respectively.                               

5. RISK MANAGEMENT                                                              

Financial Instruments                                                       

The Company uses interest-rate swaps and collars of up to 3 years in  
duration to manage its exposure to adverse movements in interest rates. The     
Company entered into a rate collar transaction in connection with               
$112.5 million of the Tranche B Term Loan to pay a floating rate of interest    
based on 3-month LIBOR with a cap rate of 6.5% and a floor rate of 5.5% which   
terminates in December 2000. At December 31, 1998, the Company has interest rate
swap agreements with notional amounts of $70.2 million that convert the variable
rates of leases to fixed rates of approximately 8%.                             

Fair Values                                                                 

   The carrying value of cash and equivalents, accounts receivable, accounts
payable and accrued liabilities approximates fair value due to the short-term   
maturities of these assets and liabilities. The fair values of long-term debt is
approximately the same as the carrying values due to the frequent resetting of  
the interest rate. The estimated fair values of interest-rate swaps and collars 
has been determined using available market information. At December 31, 1998,   
the interest-rate swaps and collars have notional values of $182.7 million and  
unrealized losses of approximately $5.5 million.                                

Concentrations of Credit Risk                                               

    In the normal course of business, the Company provides credit to customers
in the automotive industry, performs credit evaluations of these customers and  
maintains reserves for potential credit losses which, when realized, have been  
within the range of management's allowance for doubtful accounts.               

The Company invests the majority of its excess cash in money market   
accounts and, when appropriate, diversifies the concentration of cash among     
different financial institutions. With respect to financial instruments, where  
appropriate, the Company has diversified its selection of counter-parties.      

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AMERICAN AXLE & MANUFACTURING HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) 

6. EMPLOYEE BENEFIT PLANS                                                       

Pension and Other Postretirement Benefits                                   

  The Company sponsors qualified and non-qualified defined benefit pension
plans covering substantially all hourly and salaried employees in the United    
States. The Company also maintains hourly and salaried benefit plans that       
provide postretirement medical, dental, vision and life benefits to retirees and
eligible dependents in the United States. Benefits for hourly employees are     
substantially covered by collective bargaining agreements. Albion also sponsors 
a defined benefit pension plan covering substantially all hourly and salaried   
employees.                                                                      

     The following summarizes the changes in benefit obligations and plan assets
and reconciles the funded status of the benefit plans to net benefit plan       
liability:                                                                      

                                                        [Enlarge/Download Table]

                                                                      PENSION BENEFITS         OTHER BENEFITS    
                                                                    --------------------    -------------------- 
                                                                      1998        1997        1998        1997   
                                                                    --------    --------    --------    -------- 
                                                                                   (IN THOUSANDS)                
                                                                                                                 
CHANGE IN BENEFIT OBLIGATION                                                                                     
Benefit obligation at beginning of year............................ $ 78,361    $ 59,968    $ 52,666    $ 35,811 
Service cost.......................................................   16,700      11,493      18,900      12,914 
Interest cost......................................................    7,100       4,111       5,400       2,804 
Actuarial loss.....................................................    8,674       2,897       2,889       1,208 
Acquisition of Albion..............................................   38,150          --          --          -- 
Benefit payments...................................................     (513)       (108)       (364)        (71)
                                                                    --------    --------    --------    -------- 
  Net change.......................................................   70,111      18,393      26,825      16,855 
                                                                    --------    --------    --------    -------- 
Benefit obligation at end of year..................................  148,472      78,361      79,491      52,666 
                                                                    --------    --------    --------    -------- 
CHANGE IN PLAN ASSETS                                                                                            
Fair value of plan assets at beginning of year.....................   81,296      68,557          --          -- 
Actual return on plan assets.......................................    9,658      10,965          --          -- 
Employer contributions.............................................   18,843       1,764         364          71 
Participant contributions..........................................      262         118          --          -- 
Acquisition of Albion..............................................   33,898          --          --          -- 
Benefit payments...................................................     (513)       (108)       (364)        (71)
                                                                    --------    --------    --------    -------- 
  Net change.......................................................   62,148      12,739          --          -- 
                                                                    --------    --------    --------    -------- 
Fair value of plan at end of year..................................  143,444      81,296          --          -- 
                                                                    --------    --------    --------    -------- 
FUNDED STATUS......................................................   (5,028)      2,935     (79,491)    (52,666)
Unrecognized actuarial gain........................................  (14,198)    (22,825)    (13,841)    (18,060)
Unrecognized prior service cost....................................    5,109       5,612         118         146 
                                                                    --------    --------    --------    -------- 
  Subtotal.........................................................  (14,117)    (14,278)    (93,214)    (70,580)
Fourth quarter contribution........................................       --       2,000         202          53 
                                                                    --------    --------    --------    -------- 
NET LIABILITY AT END OF YEAR....................................... $(14,117)   $(12,278)   $(93,012)   $(70,527)
                                                                    --------    --------    --------    -------- 
                                                                    --------    --------    --------    -------- 

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AMERICAN AXLE & MANUFACTURING HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) 

6. EMPLOYEE BENEFIT PLANS--(CONTINUED)                                          

 The principal weighted average assumptions used in the valuation of the
U.S. and Albion plans were as follows:                                          

                                                        [Enlarge/Download Table]

                                                        PENSION BENEFITS                       OTHER BENEFITS      
                                          --------------------------------------------  ---------------------------
                                          1998-U.S.   1998-Albion       1997    1996     1998       1997     1996  
                                          ---------   -----------     -------  -------  -------    -------  -------
                                                                                                                   
Discount rate............................   6.75%        5.50%         7.50%    7.00%     7.15%      7.50%   7.00% 
Expected return on plan assets...........   9.25%        8.00%         9.00%    8.00%      N/A        N/A     N/A  
Rate of compensation increase............   4.00%        3.50%         4.00%    4.00%     4.00%      4.00%   4.00% 

                                                        [Enlarge/Download Table]

                                                       PENSION BENEFITS                  OTHER BENEFITS        
                                                 -----------------------------    -----------------------------
                                                  1998       1997       1996       1998       1997       1996  
                                                 -------    -------    -------    -------    -------    -------
                                                                         (IN THOUSANDS)                        
                                                                                                               
COMPONENTS OF NET PERIODIC BENEFIT COST                                                                        
Service cost.................................... $17,194    $15,324    $22,586    $18,900    $17,219    $19,764
Interest cost...................................   7,603      5,807      5,046      5,400      4,102      3,559
Expected asset return...........................  (8,971)    (6,261)    (3,085)       N/A        N/A        N/A
Amortized gain..................................  (1,610)      (964)        41     (1,329)    (1,136)        --
Amortized prior service cost....................     510        502        112         27         27         27
                                                 -------    -------    -------    -------    -------    -------
  Net benefit cost.............................. $14,726    $14,408    $24,700    $22,998    $20,212    $23,350
                                                 -------    -------    -------    -------    -------    -------
                                                 -------    -------    -------    -------    -------    -------

    For measurement purposes, a 7.2% annual increase in the per capita cost of
covered health care benefits was assumed for 1999. The rate was assumed to      
decrease gradually to 5.0% for 2002 and remain at that level thereafter. Health 
care cost trend rates have a significant effect on the amounts reported for the 
health care plans. A percentage-point change in assumed health care cost trend  
rates would have the following effects:                                         

                                                        [Enlarge/Download Table]

                                                                          1-PERCENTAGE      1-PERCENTAGE  
                                                                          POINT INCREASE    POINT DECREASE
                                                                          --------------    --------------
                                                                                   (IN THOUSANDS)         
                                                                                                          
Total of service and interest cost.......................................    $  7,182          $ (5,752)  
Postretirement benefit obligation........................................      18,258           (14,844)  

Voluntary Savings Plans                                                     

The Company sponsors voluntary savings plans for eligible salaried and
hourly employees in the United States. The Company matches 50% of the first 6%  
of salaried employee contributions. The Company's matching contribution was     
increased to 50% from 25% of the first 6% of salaried contributions on July 1,  
1997. Company matching contributions totaling $1.5 million, $910,000 and        
$547,000 were made for the years ended December 31, 1998, 1997 and 1996,        
respectively.                                                                   

Profit-Sharing Plans                                                        

     The Company sponsors profit-sharing plans covering substantially all of its
employees. Distributions are determined based upon established formulas and are 
made annually. Profit sharing expense for the years ended December 31, 1998,    
1997 and 1996 was $11.8 million, $23.3 million and $16.9 million, respectively. 

7.  CAPITAL STOCK                                                               

 The authorized capital stock of the Company consists of (i) 150,000,000
shares of common stock, par value $.01, of which 32,456,107 shares are issued   
and outstanding at December 31, 1998; (ii) 10,000,000 shares of preferred stock,
par value $.01 per share, of which no shares are issued and outstanding at      
December 31, 1998; and (iii) 40,000,000 shares of series common stock, par value
$.01, of which no shares are issued and outstanding at December 31, 1998.       

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AMERICAN AXLE & MANUFACTURING HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) 

8.  STOCK OPTIONS                                                               

    In 1994, the Company granted an officer of the Company options to purchase
6,891,915 shares of the Company's common stock. In 1997, the Company canceled   
and replaced these options at substantially identical terms, except for a       
modification of the exercisability period. The options may be exercised at any  
time within a 10 year term at a nominal price per share. At December 31, 1998,  
none of the options were exercised. The Company recognized compensation expense 
of $6.8 million in 1997 resulting from the modification of the exercisability   
period.                                                                         

  On October 29, 1997, the Company granted several officers of the Company
options to purchase 1,858,095 shares of the Company's common stock as           
replacement for an incentive compensation plan established in 1994. The options 
were immediately vested and exercisable at a weighted average exercise price per
share of approximately $.16. At December 31, 1998, none of the options were     
exercised. Compensation expense relating to the incentive compensation plan     
established in 1994 was $2.3 million and $6.1 million in 1997 and 1996,         
respectively.                                                                   

    On October 29, 1997, the Company granted an officer of the Company options
to purchase 327,435 shares of the Company's common stock. The options may be    
exercised at any time through November 20, 2000 at a price of $4.26 per share.  
At December 31, 1998, 71,010 options were exercised.                            

 On November 1, 1997, and as amended on November 15, 1997, the Company's
stockholders established a stock option plan ("the 1997 Plan"). There are       
5,621,625 options authorized for grant under the 1997 Plan. The 1997 Plan allows
participants to vest in options to purchase shares of the Company's common stock
based upon duration of employment or operating performance. The exercise price  
of the options equals the underlying value of the common stock at time of grant 
and the options vest and become exercisable over a seven-year period. In 1997,  
5,387,645 options were granted under the 1997 Plan at an exercise price of      
$4.26. No options were granted under the 1997 Plan in 1998 and no options were  
exercised as of December 31, 1998.                                              

 In January, 1999, the Company established the 1999 Stock Incentive Plan
("the 1999 Plan"). Under the 1999 Plan, a total of 3,500,000 shares of common   
stock is authorized for issuance in the form of options, stock appreciation     
rights or other awards that are based on the value of the Company's common      
stock. The exercise price of the options, rights or other awards granted under  
the 1999 Plan will not be less than the fair market value of the common stock on
the date of grant. No options, rights or other awards have been granted under   
the 1999 Plan.                                                                  

     The following table summarizes the activity relating to the Company's stock
options:                                                                        

                                                        [Enlarge/Download Table]

                                                                               WEIGHTED-     
                                                                  NUMBER OF     AVERAGE      
                                                                    SHARES     EXERCISE PRICE
                                                                  ----------   --------------
                                                                                             
Outstanding at January 1, 1996...................................  6,891,915       $  .01    
  Options granted................................................         --           --    
  Options exercised..............................................         --           --    
  Options lapsed or canceled.....................................         --           --    
                                                                  ----------       ------    
Outstanding at December 31, 1996.................................  6,891,915       $  .01    
  Options granted................................................ 14,465,090         1.71    
  Options exercised..............................................         --           --    
  Options lapsed or canceled.....................................  6,891,915          .01    
                                                                  ----------       ------    
Outstanding at December 31, 1997................................. 14,465,090       $ 1.71    
  Options granted................................................         --                 
  Options exercised..............................................    (71,010)        4.26    
  Options lapsed or canceled.....................................    (49,580)        4.26    
                                                                  ----------       ------    
Outstanding at December 31, 1998................................. 14,344,500       $ 1.68    
                                                                  ----------       ------    
                                                                  ----------       ------    
Options exercisable at December 31, 1996.........................  6,891,915       $  .01    
                                                                  ----------       ------    
                                                                  ----------       ------    
Options exercisable at December 31, 1997.........................  9,077,445       $  .19    
                                                                  ----------       ------    
                                                                  ----------       ------    
Options exercisable at December 31, 1998.........................  9,362,306       $  .31    
                                                                  ----------       ------    
                                                                  ----------       ------    

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AMERICAN AXLE & MANUFACTURING HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) 

8.  STOCK OPTIONS--(CONTINUED)                                                  

    Options outstanding at December 31, 1998 have a weighted average remaining
life of approximately 10 years.                                                 

   Had the Company determined compensation cost based upon the fair value of
the options at the grant date consistent with the method of SFAS No. 123, and   
using the Minimum Value method at an assumed interest rate of 6.13%, the        
Company's net income and earnings per share would have been adjusted to the pro 
forma amounts indicated below:                                                  

                                                        [Enlarge/Download Table]

                                                            YEARS ENDED DECEMBER 31,     
                                                        ---------------------------------
                                                         1998         1997         1996  
                                                        -------      -------      -------
                                                          (IN THOUSANDS, EXCEPT FOR PER  
                                                                   SHARE DATA)           
                                                                                         
Net income as reported................................. $ 3,528      $55,264      $61,724
                                                        -------      -------      -------
                                                        -------      -------      -------
Pro forma.............................................. $ 2,779      $55,138      $61,724
                                                        -------      -------      -------
                                                        -------      -------      -------
Basic earnings per share as reported................... $   .11      $   .74      $   .58
                                                        -------      -------      -------
                                                        -------      -------      -------
Pro forma.............................................. $   .09      $   .73      $   .58
                                                        -------      -------      -------
                                                        -------      -------      -------
Diluted earnings per share as reported................. $   .08      $   .43      $   .43
                                                        -------      -------      -------
                                                        -------      -------      -------
Pro forma.............................................. $   .06      $   .43      $   .43
                                                        -------      -------      -------
                                                        -------      -------      -------

9. NET INTEREST (EXPENSE) INCOME                                                

Net interest (expense) income consists of the following:              

                                                        [Enlarge/Download Table]

                                                                           YEARS ENDED DECEMBER 31,    
                                                                         ----------------------------- 
                                                                           1998       1997       1996  
                                                                         --------    -------    ------ 
                                                                                (IN THOUSANDS)         
                                                                                                       
Gross interest costs.................................................... $(48,572)   $(9,173)   $ (340)
Less interest costs capitalized.........................................    3,788        217        -- 
                                                                         --------    -------    ------ 
Interest (expense)......................................................  (44,784)    (8,956)     (340)
Interest income.........................................................      447      7,110     9,752 
                                                                         --------    -------    ------ 
Net interest (expense) income........................................... $(44,337)   $(1,846)   $9,412 
                                                                         --------    -------    ------ 
                                                                         --------    -------    ------ 

10.  INCOME TAXES                                                               

  The following is a summary of the components of the provision for income
taxes:                                                                          

                                                        [Enlarge/Download Table]

                                                                          YEARS ENDED DECEMBER 31,    
                                                                        ----------------------------- 
                                                                         1998       1997       1996   
                                                                        -------    -------    ------- 
                                                                               (IN THOUSANDS)         
                                                                                                      
Current:                                                                                              
  Federal..............................................................            $43,439    $37,773 
  Michigan single business tax......................................... $   449      4,051      5,638 
  Other state and local................................................    (931)     1,094        738 
                                                                        -------    -------    ------- 
                                                                           (482)    48,584     44,149 
Deferred:                                                                                             
  Federal..............................................................   3,580     (8,108)    (8,247)
  Michigan single business tax.........................................   1,220     (1,132)       221 
  Other state and local................................................    (422)      (411)       477 
  Foreign..............................................................  (1,822)        --         -- 
                                                                        -------    -------    ------- 
                                                                          2,556     (9,651)    (7,549)
                                                                        -------    -------    ------- 
                                                                        $ 2,074    $38,933    $36,600 
                                                                        -------    -------    ------- 
                                                                        -------    -------    ------- 

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AMERICAN AXLE & MANUFACTURING HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) 

10.  INCOME TAXES--(CONTINUED)                                                  

 A reconciliation of income taxes at the United States federal statutory
rate to the effective income tax rate follows:                                  

                                                        [Enlarge/Download Table]

                                                                       YEARS ENDED DECEMBER 31,   
                                                                     ---------------------------- 
                                                                      1998       1997       1996  
                                                                     ------     ------     ------ 
                                                                                                  
Federal statutory...................................................   35.0%      35.0%      35.0%
State and local.....................................................    5.7        2.9        4.1 
Federal credits and other...........................................   (7.3)       3.4       (1.9)
Foreign rate difference.............................................    3.6         --         -- 
                                                                     ------     ------     ------ 
Effective income tax rate...........................................   37.0%      41.3%      37.2%
                                                                     ------     ------     ------ 
                                                                     ------     ------     ------ 

   The following is a summary of the significant components of the Company's
deferred tax assets and liabilities:                                            

                                                        [Enlarge/Download Table]

                                                                                       DEFERRED TAX     
                                                          DEFERRED TAX ASSETS          LIABILITIES      
                                                          --------------------    ----------------------
                                                          CURRENT    LONG-TERM    CURRENT     LONG-TERM 
                                                          -------    ---------    --------    ----------
                                                                          (IN THOUSANDS)                
                                                                                                        
December 31, 1998:                                                                                      
  Employee benefits...................................... $10,122     $38,958                           
  Inventory..............................................   3,394                                       
  Depreciation and amortization..........................                                      $  8,562 
  Net operating loss carryforwards.......................              68,321                           
  Tax credit carryforwards...............................               2,587                           
  Goodwill...............................................               2,362                           
  Prepaid taxes..........................................                 852                           
  Other..................................................     577       3,251                           
                                                          -------     -------       ----       -------- 
                                                           14,093     116,331          0          8,562 
  Valuation allowance....................................             (45,575)                          
                                                          -------     -------       ----       -------- 
                                                          $14,093     $70,756       $  0       $  8,562 
                                                          -------     -------       ----       -------- 
                                                          -------     -------       ----       -------- 
December 31, 1997:                                                                                      
  Employee benefits...................................... $ 1,958     $24,312                           
  Inventory..............................................   3,460                                       
  Depreciation and amortization..........................              13,241                           
  Net operating loss carryforwards.......................              13,539                           
  Other..................................................     190       2,867                           
                                                          -------     -------       ----       -------- 
                                                          $ 5,608     $53,959       $  0       $      0 
                                                          -------     -------       ----       -------- 
                                                          -------     -------       ----       -------- 

     Realization of the net deferred tax assets is dependent on future reversals
of existing temporary differences and adequate future taxable income, exclusive 
of reversing temporary differences and carryforwards. Although realization is   
not assured, the Company believes that it is more likely than not that the net  
deferred tax assets will be realized.                                           

As part of the Recapitalization, an election was made to treat the    
transaction as a sale of assets for tax purposes under Internal Revenue Code    
Section 338(h)(10). As a result of this election, certain differences between   
book and tax bases of the Company's assets and liabilities were created which   
generated a deferred tax asset of $30.4 million. This amount was charged        
directly to retained earnings.                                                  

   Through October 29, 1997, the Company filed a consolidated federal income
tax return with Jupiter. Under the terms of a tax-sharing agreement, federal    
income taxes reflect the tax expense and the related liability which            

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AMERICAN AXLE & MANUFACTURING HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) 

10.  INCOME TAXES--(CONTINUED)                                                  

would have been applicable if a separate federal income tax return had been     
filed by the Company. Subsequent to the Recapitalization, the Company files     
stand-alone consolidated tax returns. Prior to October 29, 1997, the Company's  
income tax expense would not have differed materially from that reported had the
Company filed tax returns on a stand-alone basis.                               

     Income tax payments, including federal and state income taxes for the years
ended December 31, 1998, 1997 and 1996 were $9.3 million, $43.7 million and     
$44.1 million, respectively.                                                    

    At December 31, 1998, the Company has net operating loss carryforwards for
federal tax purposes of approximately $93 million and approximately $106 million
for other foreign, state and local purposes. These net operating loss           
carryforwards generally expire between 2008 and 2018, except that $49 million of
foreign net operating loss carryforwards do not expire. The Company also has    
$3.8 million of federal research and development tax credits and $7.4 million of
other state tax credits. These tax credit carryforwards expire between 2011 and 
2018.                                                                           

11.  RELATED PARTY TRANSACTIONS                                                 

On March 1, 1994, AAM, Inc. finalized an Asset Purchase Agreement with
General Motors Corporation ("General Motors") to acquire substantially all of   
General Motors' Saginaw Division's Final Drive and Forge Business Unit          
inventory, property, plant and equipment, and various other assets. In addition,
the Company entered into long-term component supply agreements with General     
Motors and General Motors of Canada, Ltd. ("GMCL"), which made the Company the  
sole-source supplier to General Motors for all components manufactured by the   
Company at the date of acquisition. In 1997, the Company and General Motors     
entered into a binding memorandum of understanding (MOU) which provides the     
framework for the continuance of this business relationship on a long term      
basis. The GMCL supply agreement, which expires in September 1999, sets forth   
the terms whereby GMCL supplies axles produced at the General Motors St.        
Catharines, Ontario facility to the Company which resells them to General       
Motors. The Company has an irrevocable option to purchase, for a nominal amount,
and relocate the equipment used in axle production by GMCL at this facility.    

   In 1994, General Motors agreed to contribute an additional $52 million to
fund capital improvements to increase the Company's productive capacity. General
Motors paid 14 installments of $867,000 and in March 1996 paid a final amount of
$35.6 million, to complete its obligation under this agreement. The Company is  
not required to repay this contribution.                                        

The following summarizes activity and balances with General Motors:   

                                                        [Enlarge/Download Table]

                                                                      1998        1997        1996  
                                                                    --------    --------    --------
                                                                             (IN THOUSANDS)         
                                                                                                    
Net sales to General Motors as a % of total........................      93%         96%         96%
Purchases from General Motors...................................... $274,376    $331,116    $328,106


                                                                        DECEMBER 31,                
                                                                    --------------------            
                                                                      1998        1997              
                                                                    --------    --------            
                                                                                                    
Accounts receivable from General Motors............................ $ 78,970    $143,756            
Accounts payable to General Motors.................................   23,337      23,223            

In connection with the Recapitalization, the Company and Blackstone   
Management Partners L.P. ("Blackstone Management"), an affiliate of the         
Company's majority stockholder, entered into an agreement pursuant to which     
Blackstone Management provides certain advisory and consulting services to the  
Company. In 1998 and 1997, respectively, the Company paid Blackstone Management 
$2.4 million and $.9 million for such services.                                 

 At December 31, 1998, the Company had a $13.4 million receivable from a
stockholder which was repaid in 1999. At December 31, 1997, the Company had a   
$7.2 million receivable from a stockholder associated with the Recapitalization 
which was repaid in 1998.                                                       

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AMERICAN AXLE & MANUFACTURING HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) 

12. COMMITMENTS AND CONTINGENCIES                                               

    The Company plans to continue to make significant capital expenditures for
new product and capacity programs and to upgrade its machinery, equipment and   
facilities. At December 31, 1998, obligated purchase commitments for capital    
expenditures were approximately $145 million.                                   

The Company is involved in various legal proceedings incidental to its
business. Although the outcome of these matters cannot be predicted with        
certainty, management believes that none of these matters, individually or in   
the aggregate, will have a material effect on the Company's consolidated        
financial statements.                                                           

13. SEGMENT INFORMATION                                                         

     The Company operates in one reportable segment, the design, engineering and
manufacturing of driveline systems (including forged products) for light and    
medium-duty trucks, sport-utility vehicles, pick-ups, buses and vans. Financial 
information relating to the Company's operations by geographic area are as      
follows:                                                                        

                                                        [Enlarge/Download Table]

                                                                  1998          1997          1996   
                                                               ----------    ----------    ----------
                                                                           (IN THOUSANDS)            
                                                                                                     
NET SALES(1)                                                                                         
United States................................................. $1,619,058    $1,725,703    $1,661,745
Canada........................................................    264,204       303,496       253,381
Mexico & South America........................................    127,525       116,813       105,574
Europe and Other..............................................     29,791         1,439         1,572
                                                               ----------    ----------    ----------
                                                               $2,040,578    $2,147,451    $2,022,272
                                                               ----------    ----------    ----------
                                                               ----------    ----------    ----------

LONG-LIVED ASSETS                                                                                    
United States................................................. $  786,988    $  674,522    $  423,183
Other.........................................................     83,033            --            --
                                                               ----------    ----------    ----------
                                                               $  870,021    $  674,522    $  423,183
                                                               ----------    ----------    ----------
                                                               ----------    ----------    ----------

------------------                                                              

(1) Net sales are attributed to countries based upon location of customer.      

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AMERICAN AXLE & MANUFACTURING HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) 

14. EARNINGS PER SHARE                                                          

The following table sets forth the computation of basic and diluted   
earnings per share (in thousands, except share and per share data):             

                                                        [Enlarge/Download Table]

                                                                     1998          1997           1996     
                                                                 ------------  ------------   ------------ 
                                                                                                           
Numerators:                                                                                                
  Net Income.................................................... $      3,528  $     55,264   $     61,724 
  Preferred dividends...........................................           --       (29,915)       (13,642)
  Excess of the carrying amount over the fair value of the                                                 
     consideration transferred to the holders of Class A                                                   
     Preferred Stock............................................           --        29,814             -- 
                                                                 ------------  ------------   ------------ 

  NUMERATOR FOR BASIC EARNINGS PER SHARE--INCOME AVAILABLE TO                                              
     COMMON STOCKHOLDERS........................................        3,528        55,163         48,082 
  Effect of dilutive securities:                                                                           
     Preferred dividends........................................           --        29,915         13,642 
  Excess of the carrying amount over the fair value of the                                                 
     consideration transferred to the holders of Class A                                                   
     Preferred Stock............................................           --       (29,814)            -- 
                                                                 ------------  ------------   ------------ 

  NUMERATOR FOR DILUTED EARNINGS PER SHARE--INCOME AVAILABLE TO                                            
     COMMON STOCKHOLDERS AFTER ASSUMED CONVERSIONS.............. $      3,528  $     55,264   $     61,724 
                                                                 ------------  ------------   ------------ 
                                                                 ------------  ------------   ------------ 

Denominators:                                                                                              
  DENOMINATOR FOR BASIC EARNINGS PER SHARE--WEIGHTED-AVERAGE                                               
     SHARES.....................................................   32,439,932    74,620,428     83,054,085 
  Effect of dilutive securities:                                                                           
     Dilutive stock options outstanding.........................   10,812,749     8,050,311      6,891,494 
     Conversion of Class A Preferred Stock......................           --    43,836,840     52,602,630 
                                                                 ------------  ------------   ------------ 
  Dilutive potential common shares..............................   10,812,749    51,887,151     59,494,124 

  DENOMINATOR FOR DILUTIVE EARNINGS PER SHARE--ADJUSTED                                                    
     WEIGHTED-AVERAGE SHARES AND ASSUMED CONVERSION.............   43,252,681   126,507,579    142,548,209 
                                                                 ------------  ------------   ------------ 

Basic earnings per share........................................ $        .11  $        .74   $        .58 
                                                                 ------------  ------------   ------------ 
                                                                 ------------  ------------   ------------ 
Diluted earnings per share...................................... $        .08  $        .43   $        .43 
                                                                 ------------  ------------   ------------ 
                                                                 ------------  ------------   ------------ 

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AMERICAN AXLE & MANUFACTURING HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) 

15. QUARTERLY FINANCIAL DATA (UNAUDITED)                                        

                                                        [Enlarge/Download Table]

                                                                  QUARTER ENDED                                   
                                               ---------------------------------------------------                
                                               MARCH 31    JUNE 30     SEPTEMBER 30    DECEMBER 31     FULL YEAR  
                                               --------    --------    ------------    -----------    ------------
                                                          (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)           
                                                                                                                  
1998                                                                                                              
Net sales..................................... $583,285    $462,913      $364,749       $ 629,631      $2,040,578 
Gross profit..................................   61,789      22,255         1,955          70,382         156,381 
Net income (loss).............................   16,923      (7,043)      (21,081)         14,729           3,528 
Diluted earnings per share....................     0.39       (0.16)        (0.49)           0.34            0.08 

1997                                                                                                              
Net sales..................................... $546,859    $538,730      $496,443       $ 565,419      $2,147,451 
Gross profit..................................   59,031      62,728        51,051          47,277         220,087 
Net income (loss).............................   24,790      26,403        17,890         (13,819)         55,264 
Diluted earnings per share....................     0.17        0.19          0.13           (0.18)           0.43 

16. SUBSEQUENT EVENT (UNAUDITED)                                                

On March 5, 1999, American Axle & Manufacturing, Inc., the Company's  
wholly-owned subsidiary, issued $300,000,000 of 9.75% Senior Subordinated       
Notes Due 2009 in a private placement pursuant to Rule 144A and Regulation S of 
the Securities Act of 1933. The net proceeds from the sale of the notes was     
approximately $289 million after deduction of discounts to the initial          
purchasers and other fees and expenses.                                         

Also in March 1999, the Company resyndicated its revolving receivables
facility through its subsidiary, AAM Receivables Corp. In addition, this        
facility has been expanded from $125 million to $153 million.                   

On April 1, 1999, the Company purchased two forging companies, Colfor 
Manufacturing, Inc. ("Colfor") and MSP Industries Corporation ("MSP"), for an   
aggregate cash purchase price of approximately $223 million. Colfor specializes 
in precision cold, warm and hot forgings and operates three manufacturing       
facilities in Ohio. Giving effect as of January 1, 1998 to Colfor's October 1998
acquisition of Valley Forge, Inc., Colfor's pro forma 1998 sales would have been
approximately $126 million. MSP manufactures precision forged powertrain,       
driveline, chassis and other components using cold and warm forging processes at
three manufacturing facilities in Michigan. MSP's 1998 sales were $56 million.  

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SIGNATURES

PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(D) OF THE SECURITIES 
EXCHANGE ACT OF 1934, THE REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED ON
ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED.                       

                                         AMERICAN AXLE & MANUFACTURING
                                          HOLDINGS, INC.
                                          REGISTRANT

                                By: /s/ Patrick S. Lancaster
                                              ----------------------------------
                                      Name: Patrick S. Lancaster
                            Title: Secretary

   PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THIS
REPORT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS ON BEHALF OF THE          
REGISTRANT AND IN THE CAPACITIES INDICATED.                                     

                                                        [Enlarge/Download Table]

                SIGNATURE                                        TITLE                             DATE      
------------------------------------------  ------------------------------------------------  ---------------
                                                                                                             

         /s/ Richard E. Dauch               Chairman of the Board of Directors, President      April 19, 1999
------------------------------------------  and Chief Executive Officer                                      
             Richard E. Dauch                                                                                

        /s/  Gary J. Witosky                Vice President--Finance and Chief Financial        April 19, 1999
------------------------------------------  Officer (in the capacity of principal financial                  
             Gary J. Witosky                officer and principal accounting officer)                        

       /s/     B.G. Mathis                  Director, Executive Vice President--               April 19, 1999
------------------------------------------  Administration and Chief Administrative Officer                  
               B.G. Mathis                                                                                   

      /s/   Glenn H. Hutchins               Director                                           April 19, 1999
------------------------------------------                                                                   
            Glenn H. Hutchins                                                                                

     /s/     Bret D. Pearlman               Director                                           April 19, 1999
------------------------------------------                                                                   
             Bret D. Pearlman                                                                                

    /s/     David A. Stockman               Director                                           April 19, 1999
------------------------------------------                                                                   
            David A. Stockman                                                                                

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SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
AMERICAN AXLE & MANUFACTURING HOLDINGS, INC.

ALLOWANCE FOR DOUBTFUL ACCOUNTS 

                                                        [Enlarge/Download Table]

                                                                       ADDITIONS--                               
                                                           BALANCE AT  CHARGED TO    DEDUCTIONS--                
                                                         BEGINNING OF  COSTS AND     SEE NOTE (1)  BALANCE AT END
PERIOD                                                      PERIOD      EXPENSES       BELOW          OF PERIOD  
------                                                   ------------  ----------    -----------   --------------
                                                                             (IN THOUSANDS)                      
                                                                                                                 
Year Ended December 31, 1996............................    $1,000       $1,600        $     0         $2,600    
Year Ended December 31, 1997............................    $2,600       $1,000        $   353(1)      $3,247    
Year Ended December 31, 1998............................    $3,247       $3,497        $ 3,758(1)      $2,986    

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(1) Uncollectible accounts charged off net of recoveries.                       

Dates Referenced Herein   and   Documents Incorporated by Reference

				Referenced-On Page
This ‘SP 15D2’ Filing		Date		First		Last			Other Filings
		11/20/00		27
		6/15/99		10		20
Filed on:		4/19/99		34
		4/1/99		7		33			8-K
		3/31/99		1		7			10-Q
		3/5/99		7		33
		3/1/99		7
		2/5/99		12
		2/3/99		7					5
		1/22/99		13
		1/1/99		10		21
For Period End:		12/31/98		1		35
		12/15/98		10		21
		5/15/98		13
		1/1/98		8		33
		12/31/97		1		35
		11/15/97		27
		11/1/97		27
		10/29/97		3		30
		9/17/97		3
		7/1/97		26
		1/1/97		19
		12/31/96		5		35
		1/1/96		17		27
		2/2/95		10
		3/1/94		30
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